Ahead of Tax Break, All Quiet on Retail Front
Retailers are waiting eagerly for consumers to spend their upcoming tax rebate.
They just aren’t so eager to come right out and ask consumers for their money.
Economists predict that many of the roughly 95 million Americans who will start receiving $300 to $600 federal tax rebate checks on July 23 will spend a good chunk of the windfall, instead of saving it or paying debts.
So sellers of everything from lumber to clothing--some of whom actively lobbied Congress for the rebates as part of President Bush’s tax cut--are quietly hoping for a much-needed boost.
But unlike Christmas and Mother’s Day, when big stores pull out all advertising stops, this is one selling opportunity most retailers want to handle gingerly. If retailers push too hard, they risk pushing away potential buyers who would be put off by the crass hard sell.
Representatives of Wal-Mart Stores Inc., Kmart Corp., Circuit City Stores Inc. and other retailers said they have no special pitches or promotions planned.
At Target Corp., parent of its namesake stores as well as Mervyn’s California, executives say they don’t have to orchestrate a special campaign.
“The Target guest is smart. When the money comes, she’s going to spend it where they have something she wants, not based on some ad,” said Jerry Storch, Target’s vice chairman. “We’re counting on our existing marketing to pull her in.”
What’s more, the stores may not have to push. Watchers of consumer spending habits say most Americans will probably leave at least a portion of their rebate money with local merchants, in part because many Americans who shopped until they dropped in the late 1990s are feeling a bit deprived lately. Retail sales have suffered since the economy began to slow more than a year ago, a result of jittery stock markets, growing unemployment and rising fuel costs.
Even when their purse strings are tighter, consumers are more likely to spend unexpected windfalls on pricier, or “wish-list,” items such as digital cameras or Hawaiian vacations, rather than to pay off debts, add to savings or purchase delayed necessities such as everyday shoes, consumer experts say.
“It feels like free money, because we didn’t expect it,” said Celia Hernandez, a 19-year-old newlywed and assistant manager at a Van Nuys restaurant who hopes to use her refund toward a delayed Hawaiian honeymoon. “You don’t want to use it just to pay bills. My mother is very responsible, and she will probably use hers to treat my brothers and sisters, like with a new bike or something.”
That’s the attitude that leads many financial analysts and retail economists to predict a slight boost to the retail sector in the second half of the year.
“One way or another, it is a positive for the consumer and the retailer,” said Matt Fassler, a retail analyst with Goldman Sachs in New York. “Anything the consumer doesn’t spend, the consumer will likely use to pay off debt. Spending helps retailers today; debt pay-down creates spending capacity for tomorrow.”
With most American households spending more money than they earn, for an average savings rate of -0.7%, economists at Lehman Bros. say consumers are likely to spend at least a third of their rebate.
The Internal Revenue Service will send a maximum of $300 to singles, $500 to heads of households and $600 to married couples during the course of about three months, starting at the end of July.
Most people will receive the maximum amount, IRS officials have said. The refund goes to almost everyone who filed a 2000 tax return. Taxpayers will be notified by mid-July about the refund amount and date, which is determined by the last two digits of their social security numbers; joint filers are categorized by the top number on the return.
The rebates, which come from President Bush’s push to lower 2001 income tax rates and apply the measure retroactively to Jan. 1, will be worth about $38 billion, Congress estimates.
Deutsche Banc Alex. Brown says that could translate to as much as a $27-billion infusion in just the third quarter. That cash will boost consumer spending during the quarter by an extra 1.2 percentage points, Deutsche Banc estimates, accounting for about 1% of the gross domestic product.
And though most retailers are loath to acknowledge anything as transparent as a special marketing campaign, their interest in gaining a portion of this new cash pool is still crystal clear.
Their main trade group, the National Retail Federation, was a big enough backer of the rebate measure that the group’s leaders were invited to Bush’s signing ceremony for the full $1.35-trillion tax cut.
Some retail executives took a more direct approach.
In a full-page ad in April in the political insider publication Roll Call, Donald Fisher, founder and chairman of Gap Inc., and Robert Nardelli, president and chief executive of Home Depot Inc., urged passage of the measure.
“Fast tax relief for consumers is quick relief for the economy,” the ad read. “As two of the country’s largest retailers, we see firsthand how consumers are scaling back. The U.S. economy badly needs a jolt to get back on track.”
Among the few renegades in the subtle sales battle is consumer electronics chain Good Guys Inc., where executives said they aren’t likely to shy away from a direct approach to garnering sales.
“We’d be one of the ones to have fun with this,” Good Guys President Ken Weller said. “It’s an interesting challenge for our advertising team to really put a hook there and see how we can promote this.”
Weller said the Bay Area-based chain has not finalized its marketing plans.
Becky Hinchliffe, a physical therapist from Burbank and mother of a 17-year-old daughter and 12-year-old son, expects to bank the money she and her husband will receive--until they can figure out where they want to spend it.
“Just until we regroup,” she said. “It will eventually go for the kids--we’re thinking about a car for my daughter and my son. He’s my expensive one in terms of shoes and clothes.”
And, noted one woman who said she wasn’t in favor of Bush’s tax plan, her opposition doesn’t mean she’ll send her $600 back.
Katherine Williams, a 33-year-old midwife from Studio City with two small children, said her check will go to supplies and other incidentals for her new baby delivery business.
“I guess that justifies what Bush says, that this money is going to go right back in and stimulate the economy,” Williams said. “I would easily go without $600 in favor of paying down the deficit, but since the check is coming, I’ll use it.”
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Wish List
Here are some “wish list” products that consumer experts predict will be popular for people spending their upcoming tax rebate checks:
* DVD players
* Digital cameras
* Video game consoles
* Personal digital assistants
* Hawaiian vacations
* Furniture
* Home improvement products
* Expensive shoes
* High-end cosmetics
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When Will Refunds Arrive?
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Last 2 digits Week of Social your Security check number* will arrive 00-09 July 23 10-19 July 30 20-29 Aug. 6 30-39 Aug. 13 40-49 Aug. 20 50-59 Aug. 27 60-69 Sept. 3 70-79 Sept. 10 80-89 Sept. 17 90-99 Sept. 24
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*For married couples filing jointly, the first Social Security number listed will be used.
Source: Internal Revenue Service
