With the price of gas hovering near all-time highs, the thought of driving to the store can send shivers down your spine. Despite this chill, we continue to spend. May retail sales were strong across the board. It is clear that higher gasoline prices are not going to stop consumer spending from rising and will not stop the impact of the fiscal stimulus.

Excluding gasoline sales, retail sales were up 0.8% for the month of May. Excluding autos, sales were up 1.2%. General merchandise stores posted a 1.2% increase, as department store sales were up 0.8%. Building materials and gardening stores were up 2.4%, while clothing stores were up 0.5%. 

Gasoline sales rose $1.1 billion in May. The average monthly gain in total personal income in 2008 has been $3.2 billion. The fiscal stimulus provides $100 billion in checks to consumers over three months, or about $33 billion per month for May, June, and July. The larger amount spent on gas simply is not large enough to undermine regular income gains, and certainly not the fiscal stimulus.

Consumer spending was trending flat to up a bit in the first quarter. Now, spending appears to be picking up a bit as the fiscal stimulus is starting to kick in. Real personal consumption expenditures were up at a 1% annual rate in the first quarter, but solid gains in retail sales for April and May suggest the second-quarter growth will be higher. Consumer spending has remained resilient in the face of lower home prices, higher gas prices, and stagnant employment levels. Spending got a major boost in May with the $110 billion in fiscal stimulus sent to individuals. Retail sales partially reflected this in May, and this should show even more strongly in June.

Since higher gas prices appear to be keeping people at home more, how can we explain the retail sales figures? It's really quite simple: we had United Parcel Service, Inc. (NYSE: UPS, Stock Forum) and FedEx (NYSE: FDX, Stock Forum) do the driving for us.  

There is no doubt that the Internet has transformed the way consumers shop and interact with the companies from which they buy. A recent survey showed 48% of consumers claim they have increased their online shopping habits “a great deal” or “somewhat” in the last five years. Early online stores like Amazon.com (NASDAQ: AMZN, Stock Forum) and eBay (NASDAQ: EBAY, Stock Forum) have gotten their fair share of the business. Traditional box stores like Target Corp. (NYSE: TGT, Stock Forum) and Wal-Mart Stores Inc. (NYSE: WMT, Stock Forum) are closing in on the online shopper with better online service and more efficient websites.

With a continued influx of shoppers moving to the Internet, companies need to develop new strategies to meet the different needs of online shoppers. One attribute that stood out in delivering a successful online experience was fast access to information. In the survey, 44% of consumers say they have abandoned a virtual shopping cart because they could not get a question answered during the online purchase process.

Going to a store usually means dealing with a less-than-helpful clerk, fighting crowds, searching for what you want, and a plethora of other not-so-enticing factors. But the online retailers have made their online stores so much nicer with improved product information and customer reviews. You can see all the features for a product and discover how other customers feel about the product.

Shopping online often uses less of your valuable time as well. OK, it often takes a little longer to shop online than to run down to one store and make the purchase, but there is a very good reason for this. When shopping online, we tend to do more research and, therefore, make better decisions. It is just not practical to drive all around town to find the best television with the best price. It would take all day and cost a small fortune for the gas.

With all the strains on our time, it’s just faster to go to the web, pick out what you want, and compare it across several retailers. In the time it would take to drive to Best Buy (NYSE: BBY, Stock Forum) and purchase the first television we see, we could compare BBY with Circuit City Stores Inc. (NYSE: CC, Stock Forum), TGT, WMT, AMZN, and check for any deals on EBAY, too. With a few clicks, we can have the best deal on the television we want and have it show up at our door in a day or two.

We even get our movies from the Internet now, too. Blockbuster Inc. (NYSE: BBI, Stock Forum) still has their brick and mortar stores, but they are giving Netflix, Inc. (NASDAQ: NFLX, Stock Forum) a run for the online share as well. Not all movies come through the mail, though. Both BBI and NFLX have download features so you can get instant access to titles as well.

Since consumer spending is the largest component of GDP and the online portion of spending is growing larger by the minute, this may be a place to put some money to work.

For a play in the online retail industry, you may want to consider EBAY. The stock has added premium in its options right now because the company reports earnings on July 16. Look at the August 25/22.50 Bull Put spread for a 35 cent credit. That's a 16.3% return, and the stock has to fall over 9% to cause a problem.

NFLX is another online retailer with an upcoming earnings release. For a hedged play on NFLX, you may want to consider the August 22.50/20 Bull Put spread for a 35 cent credit. That's also a 16.3% return, and the stock has to fall more than 15% to cause a problem.

Try to learn with every trade and don’t just play the lottery. The portfolio you save will be your own.

This week Investors Observer covers:

Online retail – Will it thrive as market forces go through major changes and how can investors play these stocks?

Articles:
* What’s Next For Online Retail? + Lee’s take on M, JWN, C, BAC, AMZN, NFLX, DELL, SYMC and MSFT
* What is the Engine Driving the Future of Online Retail?
* Could Online Retail Be the Next Booming Sector?
* What’s the Next Casualty of the Online Retail Boom?

Click here to read any of these articles.

Vic Wisemann
Lead Analyst

Vic Wisemann is an equity option strategy analysts with Investors Observer. Mr. Wiseman manages several portfolios for the company and comments weekly on his insights, strategies, and tactics for playing the market to win.

DISCLOSURE: Mr. Wisemann owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he discusses in his articles.