Tuesday, May 13, 2008

Will the Tax Rebates Jumpstart Retail for 2008? Consumers Predicted to spend $42 billion

By Debbie Hauss, Executive Editor

An “unexpected windfall” for many, the 2008 tax rebates may motivate consumers to spend more as disposable income, possibly on big-ticket purchases. That’s one perspective from Frank Badillo, senior economist for Retail Forward. In a Retail Forward survey, 19 percent of respondents said they plan to use their tax rebate for a “special purchase” (source: TNS Retail Forward ShopperScape™, February 2008).

Industry organizations, including RetailForward and the National Retail Federation, have predicted that consumers will actually go to retail stores and spend as much as $42 billion of the close to $106 billion rebate money, and this will boost the economy for 2008.

But the 2008 boost may be less than hoped for. Representing approximately 40 percent of the total rebate money, the $42 billion is less than households spent on the 2001 tax rebate, which amounted to approximately 67 percent, according to Badillo. Also, “For many households the economic environment might dictate that the rebate be spent in a way similar to this year’s tax refund – to make ends meet or pay off a debt burden,” he says.

“The retailers I think will see a nice bump will be grocers who are offering the 10 percent increase, or $30, $60 or $120 additional to the value of the checks,” notes Greg Buzek, president of IHL Services. “Since many also have gas stations that offer discounts based on volume at their stores, this extra inducement amounts to either lower grocery bills or lower fuel costs, the two areas where most consumers are getting hit hard today.”

Consumers surveyed around the country by numerous newspapers deliver mixed responses. Some say they plan to use the money to pay down long-term debt or just pay for basics like groceries and gasoline, which both are quickly rising in cost. Other consumers say they may use the money for ‘wants’ rather than ‘needs’, such as a new computer, TV or vacation.

Tempting Consumers to Make Special Purchases
Big-box retailers, specialty retailers and department stores are hoping more consumers will choose the latter and are offering incentives such as free rebate check cashing and additional percent savings. Following are some of the promotions being offered:

· Sears is giving consumers an additional 10% when they exchange their rebate check for a store gift card for Sears, Kmart or Lands’ End.

· RadioShack is offering a 10 percent discount on purchases of $50 or more when the rebate check is used for payment.

· Sony attempted to pre-empt other retailers by offering a $400 discount on televisions during six weeks beginning in March, before the rebate checks went out, and the company reported an increase in traffic in what is normally a slow season.

Banking on Consumers’ Need to Be Frugal
Supermarkets and discount retailers are betting that consumers will spend more of their rebate money on necessities and are offering incentives to garner a bigger share of the rebate spend:

· Wal-mart is cashing rebate checks for free and waiving the purchase fee on its Wal-mart MoneyCard, a prepaid debit card, if consumers use at least a portion of their rebate check to load the card.

· Supervalu is inviting customers to exchange their tax rebate funds for store gift cards in $300 increments, and is adding $30 to the pot for shoppers at its Albertsons, Jewel-Osco, Shop ‘n Save and other grocery stores.

· Kroger is adding 10 percent to shoppers’ total rebate exchange, up to $120.

· Home Depot is encouraging consumers to spend wisely, by purchasing energy-efficient products. The home improvement retailer is offering promotions on light bulbs and energy-saving appliances.

Still other retailers don’t believe the rebate checks will have much direct impact on their business and are focusing in other areas. Target and Best Buy both say they will not make a direct pitch for rebate money, as reported in the Minneapolis Star-Tribune. A Macy’s spokesperson reported to Reuters that she expects most of the rebate funds to be spent on necessities such as food and gasoline.

With the average price of regular grade gasoline hitting $3.60 for the week of April 24, 2008, according to the Energy Information Administration, it may come as no surprise that consumers may try to hold on tighter to their money this year.