Chicago, IL, June 9--Attention shoppers. We welcome your tax-rebate checks. Family oriented retailers and restaurants may get a lift in sales this summer as millions of consumers with children receive tax rebates in the mail.
But the extent of that boost is tough to predict as it is unclear how much of the rebate from a hike in the child tax credit will be spent on dinners and dungarees instead of being socked away in savings.
"Some are going to spend it; some are going to save it; some are going to use it to pay down debt," said Steve Pfister, vice president of government relations for retail trade group the National Retail Federation. Pfister has monitored the $350 billion tax cut package that was recently passed by Congress.
One thing's for sure. Retailers will try to get parents to spend the extra money on their products, particularly those aimed at the back-to-school selling season. Stores may spend money on ads that specifically target the rebate dollars, in some cases making it easy for consumers to cash checks on site, and also by coming up with special promotions.
Under the plan, about 25 million families will receive checks of up to $400 per child, starting in late July. The timing coincides with back-to-school shopping at retailers who are working off the inventory hangover from a cold, wet Spring that dampened sales. In total, about $14 billion in checks will be sent out, the U.S. Treasury said.
More families could also get rebates if legislation is passed to extend the tax break to lower income families.
The rebate will likely help sales at "your Kohl's and Targets and Wal-Marts and even your Toys R Us," Joe Grabowski, analyst at Strong Capital, said, referring to retailers "who sort of disproportionately serve those middle-class families with kids."
"Neiman-Marcus probably isn't going to see any pick-up in spending," he added, referring to upscale retailers.
When rebate checks were issued more widely to taxpayers in 2001, as part of a previous Bush tax-cut package, Wal-Mart Stores Inc. and other retailers tried promotions to get consumers to spend their extra cash in those stores.
Wal-Mart, the world's largest retailer, allowed consumers to cash rebate checks in its stores, in the hopes they would then spend the money at the discounter. This year, the company plans to do the same thing, a spokesman said.
Sears, Roebuck and Co., the largest U.S. department store chain, also has promotional plans around the rebates, a spokeswoman said, declining to provide details.
But not all retailers are focusing on getting a boost from the tax rebate. John Eyler, Toys R Us Inc.'s chief executive, told shareholders this week the company is focused more on bringing in customers on a regular basis with lower prices and more activities for children, rather than piggybacking on one time events like the tax rebate.
Analysts said it was not clear how much the tax rebates boosted sales for retailers and restaurants in 2001, when the checks started arriving shortly before the Sept. 11 attacks.
"The consumer basically treated it as a windfall, which means they spent far less of it than if it was permanent," Michael Niemira, retail analyst at Bank of Tokyo-Mitsubishi, said.
But the retail industry is counting on this year's rebates to wind up in the hands of people who will spend them.
"When you look at the people that are going to be eligible to receive this, those are people who are going to look forward to have that disposable income in their pockets and are likely to go out and spend it on their families," NRF's Pfister said of the middle-income and lower-income families who could get the checks.
