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NEW YORK-The check's in the mail, but where will the consumer spend it?

That's the $38 billion question as home furnishings retailers and vendors hope for a sales spark from consumers cashing in income tax rebates that will hit mailboxes starting this week.

While the nation's top retailers are offering a variety of incentives and discounts as they vie to be the chosen place for consumers to cash -- and, of course, spend -- their checks, retailers and vendors alike are decidedly undecided on how much of a boost it might mean for the industry.

In the midst of a sluggish economic climate, "and with the way people are watching their spending," there is no way of knowing how much the rebate will boost purchases, Joe Ettore, chairman and chief executive officer of Ames, told HFN. However, he expects it to build store traffic. "This is going to be like found money," he said.

"My guess is that it will go to back-to-school-related products. For some people, that's apparel; for others, sheets and towels, and storage for a dorm room, for example. The back-to-school business will probably benefit the most."

Ames, Wal-Mart, Sam's Clubs, Kmart and BJ's Wholesale Club are all part of a growing list of retailers offering to cash the rebate checks for free. Ames and Kmart offer discounts toward purchases along with their check-cashing services.

Home Depot is giving its credit cardholders no interest for six months on purchases of $299 or more. Meanwhile, Lowe's has added a tag to its regular TV ads that consumers should invest their rebate dollars in home improvement.

Retailers looking to capitalize on the tax could gain between 1 and 3 cents per share extra in the next quarter, depending on how aggressively they pursue consumers, said Dan Binder, an analyst with Buckingham Research Group. He added that spending will most likely go to discretionary purchases and higher-ticket items, such as personal computers, cameras, even home furnishings, as opposed to consumables.

"Wal-Mart told me that [at the chain], refund money tends to be spent on electronics, computers, sporting goods and automotives," Binder said. "Those are the areas that are going to benefit, they said, based on historical evidence."

While most vendors and home furnishings specialty retailers are slightly optimistic regarding the tax rebates, few are planning special promotions.

Simmons Co. is an exception. The bedding specialist, to motivate its retailers, has launched a Tax Refund Bed Check program to help dealers persuade consumers to invest in a Simmons mattress. Dealers are being provided with retail ads and in-store point-of-purchase materials to stimulate sales.

"There are all sorts of home furnishings you can buy for a few hundred dollars that will give your home an updated, stylish look and consequently give you a whole new outlook," said Jackie Hirschhaut, vice president of the American Furniture Manufacturers Association.

The tax rebate may not make much of a dent in the business of speciality floor covering retailers that carry high-end rugs. "I don't think that is going to put anybody into a rug-buying frenzy," said Katie McGrail, buyer for Central Carpet, a New York City-based retailer that carries an extensive selection of area rugs and broadloom, from machine-made styles to antique Oriental rugs.

McGrail predicts that most people will use the tax rebate to pay off bills. "I don't think that rugs are at the front of everyone's mind, especially during this time."

Expectations from vendors vary greatly.

"We're not doing anything with regard to the taxes," said Jeremy Jones, T-Fal's director of marketing for electrics. "Of course, you'd love to think there's going to be a huge surge, but I don't really see it having that much of an impact. I think it's more of an opportunity for the retailers to see if they can come up with a good promo hook."

Pat Moyer, vice president of marketing for Mohawk Home, reflected most vendors' attitudes: "This certainly is an opportunity to capture some business we weren't planning for, but it's really up to the retailer."

Retailers' Take: No Big Deal

In its survey of presidents and chief executive officers of leading home furnishings retailers for the first quarter of 2001, HFN asked the executives how they expected the Bush administration tax cut to affect sales. Half responded that it would have no impact, and most of the others expected a "moderate" sales increase.

Predicted Effect of Tax Cut on Retail Sales

Major increase 3.6%

Moderate increase 46.4%

No significant impact 50.0%

Source: HFNdex, Q1 2001
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Author:Report, HFN
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jul 23, 2001

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