April 25, 2008 / 6:39 PM / 10 years ago

Retailers will struggle to win tax rebate sales

By Nicole Maestri - Analysis

A customer grocery shops in Crossville, Tennessee March 21, 2008. REUTERS/Brian Snyder

NEW YORK (Reuters) - Eagerly awaited tax rebates will begin reaching consumers on Monday, but struggling retailers may only get a small boost from the stimulus checks as shoppers use the extra cash to pay down debt, or cover basic expenses, like gas and food bills.

The U.S. Treasury Department is accelerating its schedule for distributing the checks, which are part of its $152 billion 2008 economic stimulus package. Payments totaling more than $100 billion should be mostly in consumers’ pockets by the end of June, with the first payments arriving next week instead of in early May.

Retailers are eyeing the rebates as a means to boost business as the slowdown in consumer spending has battered their sales and profits.

But the rebates will mainly be going to individuals with taxable incomes of less than $75,000 and couples with taxable income below $150,000 -- the consumers most affected by higher food prices, rising energy costs, the prolonged housing market slump, the credit crunch and a weakening job market.

Instead of splurging on furniture, jewelry or a big-screen TV, those beleaguered shoppers may use the rebates on basics like gas, groceries and bills.

“Consumers are so focused on getting their own financial houses in order,” said Britt Beemer, chairman of America’s Research Group, which tracks consumer behavior. “You’re seeing a lot of consumers act very responsibly, and say, ‘I‘m not going to spend this money.'”


The rebates pay up to $600 for individuals and $1,200 per married couple. An additional $300 per child will go to families with children.

“The money’s going to help Americans offset the high prices we’re seeing at the gas pump and the grocery store and it will also give our economy a boost to help us pull out of this economic slowdown,” U.S. President George W. Bush said on Friday.

Retailers have devised ways to get shoppers to spend the cash in their stores.

Office supply retailer Staples Inc SPLS.O has launched the “Staples Economic Stimulus Center” on its Web site, providing information about tips to find savings.

Sears Holdings Corp (SHLD.O) will offer a 10 percent bonus if customers convert their entire stimulus check into a Sears or Kmart gift card. For instance, if the check is $600, Sears will give consumers gift cards totaling $660.

“Things are tight right now, so people are having to look really hard at value,” said Kevin Brown, vice president of marketing services for Sears Holdings.

Retail food chains Kroger (KR.N) and Supervalu Inc (SVU.N) will allow customers to exchange their stimulus check for a store gift card loaded with extra money.


It remains to be see if shoppers will be in the mood to spend the cash on anything besides making ends meet or paying down debt.

According to the Reuters/University of Michigan Surveys of Consumers released on Friday, consumer confidence fell for a third straight month in April, hitting its weakest level since March of 1982, on heightened worries over inflation and the sagging housing market.

The survey found that consumers still favor using their rebates to repay debt and increase savings.

“Independent surveys we’ve seen suggest only 23 percent of households plan on spending their rebate checks, with 40 percent outlining plans to pay down debt and 27 percent applying money towards increasing savings,” wrote JP Morgan analyst Charles Grom in a research note.

    In addition, Grom said recent gift card redemptions show consumers are spending on items of “need” like food and gasoline instead of items of “want” -- a pattern that could be repeated with tax rebates.

    In February, a National Retail Federation survey found that consumers planned to spend 40.6 percent of tax rebate checks.

    Scott Krugman, a spokesman for the trade group, said he wouldn’t be surprised to see the amount that consumers spend creep up, driven by inflationary pressures.

    “Gas prices have gone up exponentially since we even first announced the rebate checks,” he said.


    A Goldman Sachs survey found that at least $27 billion to $32 billion of the stimulus checks will be spent.

    “We think discount retailers, department stores, and food retailers will benefit most,” Goldman noted.

    Joseph Feldman, an retail analyst with Telsey Advisory Group, noted that the estimate of $27 billion to $32 billion in spending is a big chunk of cash and is larger than typical back-to-school spending of roughly $18 billion to $19 billion.

    But he said the question remains: “Is it just going to be spent on daily household means, or are people really going to go into Best Buy (BBY.N) and buy a new TV?”

    “Our sense is that the beneficiaries will be retailers such as Wal-Mart (WMT.N), Target (TGT.N), Costco (COST.O), and BJ’s BJ.N -- basically the big box discounters that will be able to drive traffic with their consumables.”

    Additional reporting by Karen Jacobs in Atlanta, editing by Richard Chang

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