April 14, 2008
Glass Half-Full, Half-Empty Scenarios on Tax Refunds and Rebate Checks
One of Wal-Mart’s board of directors is looking for the upcoming economic stimulus rebate checks to provide a “real boost” to sales for the retailer and presumably a few other businesses, as well.
Jack Shewmaker, a Wal-Mart director and a former vice chairman of the company, said the retailer has positioned itself to meet the needs of consumers in tough economic situations and told Bloomberg News that he believes 2008 will be a “strong year” for its various businesses.
While Mr. Shewmaker, members of the Bush Administration and some others believe that checks mailed out next month will spur consumer spending, others are considerably less optimistic.
With consumer confidence at a 35-year low, the betting money is that stimulus rebate checks mailed out next month will go largely to paying down debt, saving a little or helping out paying for basics. Big-ticket discretionary purchases appear unlikely among the majority of rebate check recipients.
“This probably won’t do what the federal government wants,” Massachusetts Treasurer Timothy Cahill told The Patriot Ledger. “People tend not to spend when they’re nervous about the economy.”
Separately from the economic stimulus bill’s rebate checks are consumer expectations for tax refunds. Many consumers filed earlier this year to put themselves on the list for tax rebate check.
In February, Tracy Mullin, president and chief executive officer of the National Retail Federation (NRF), said in a press release, “With high gas prices, a sluggish housing market and low wage growth, consumers are in the middle of the perfect storm. Americans who receive a tax refund will be anxiously awaiting those checks to buy necessities, pay down debt, or indulge in something they had been putting off.”
Discussion Questions: Will the economic stimulus rebate checks help spur consumer spending and boost retail sales as advocates of the program are hoping? Are there retailer channels that will benefit most from the rebates than others?
- Wal-Mart director expects ‘real boost’ from tax rebates – Bloomberg News Service/Asbury Park Press
- What Are You Doing With Your Rebate Checks? – Highlands Today
- Most say rebate checks will be used to pay bills – The Patriot Ledger
- Americans Eager to File Tax Returns This Year, According to NRF – National Retail Federation
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I don’t think these rebate checks will make much of an impact. First of all they are only giving them to low income people who are below $75,000 to $100,000. I think the most anyone can get is something like $1,200. Some are only getting $300. That’s a day’s pay for a lot of people. So basically we are giving people an extra day’s pay and it’s suppose to cure the economy? Sounds more like buying votes.
I would guess that most BrainTrust panelists won’t be seeing a nickel of this tax rebate. What answer should I give? That it will help keep an unfortunate family in their sub-prime mortgaged home for two more weeks?
The economy is hurting some a lot more than others. Many of the ones not being hurt won’t receive a stimulus check anyway and the ones about to lose their house have much bigger problems facing them. But I think the vast majority of Americans will probably spend at least some of their rebate on discretionary things that they wouldn’t have bought otherwise. So it should achieve most of what it is intended to do and that is give the economy a lift, but probably a very short and temporary one.
Yeah, nothing will work, it’s not enough–that’s the story everyone is jumping on.
I say you’re wrong. Even if–if–people choose to spend down debt, that still frees up money they would have been paid towards that debt. Consumers will feel richer which is bound to help the economy.
Get off the bandwagon of the sky is falling–it isn’t good for business. Talking heads have put us where we are today since they began drumming on the big R word.
It used to be the role of news to report what happened. Now the money is made in making us afraid of what we didn’t know that could kill us.
Turn off the TV and go sell something instead of telling the rest of us it can’t be done. Correct the economy by servicing your customers!
I agree that entertainment and travel are good categories to enjoy a little upside at retail, but so is home and garden for those who may get the checks during the annual planting season. I sure could use a little bright color in the yard to lessen the “dreary mood” I can’t seem to shake. Trouble is, the AMT tax burden this year is higher than last year, so any rebate will go back in the bank to offset that IRS check I wrote yesterday. In my home, all spending is under scrutiny, and very few discretionary purchases will be made.
Rebate checks may provide a temporary rise in retail spending, if any. Unless long term structural changes in the economy are addressed, efforts such as rebate checks are short lived! Will we ever learn to think in terms of addressing root cause(s) and long time frames?
I also think the rebate checks will turn into cash in the wallet. That means it will go for gas, food and maybe a restaurant dinner. It will be mostly gone by the time the next credit card bill arrives, but will feel good in the wallet while it lasts. So consumer sentiment polls may show an effect. I don’t think it would make much of a dent in paying down most credit card balances.
In my opinion, retailers like Wal-Mart will derive benefit from the tax stimulus program because, regardless of what consumers are saying–i.e., they will use it to pay bills or to buy text books for college students, etc–the fact is that most consumers “spend” faster than they can save, or pay off bills. It’s simply a matter of realistic consumer behavior.
On the other hand I do not predict that the non mainstream retailers will gain much benefit for the package. It’s an impulse buy.
Wal-Mart will see some increase with this stimulus package. I disagree that people will apply to debt or save the money. I think many will look at it as “free” money and use it for items they have been wanting.
Last week, while on a business trip to Orlando, it didn’t feel like a economic downturn. The flight was full (families with kids in tow) and the hotel was crowded with families on spring break. Let’s face it! The reason the housing market is in such bad shape is because many have over-spent and bought homes they could not afford in the first place. The same with this package; my prediction is over 70% will spend.
Unlike other recent recessions or economic slowdowns, today’s situation is also driven by sharp inflationary pressures on essentials like fuel and food. For anyone old enough to remember the “stagflation” of the early 1970s, there are some similarities. It’s hard to see pricing pressures retreating anytime soon, even if you believe that overall spending will start to rebound during the second half.
So it’s not a reach to see that consumers will be more likely to spend their rebate checks on basic necessities like groceries rather than discretionary items. Wal-Mart is indeed in a good position to take advantage of this trend, as its recent positive sales results demonstrate. The bigger question is whether consumers will spend their rebate checks at all or use them to retire debt. Frankly, some retirement of debt would be more healthy for the consumer economy over the long haul even if it doesn’t provide the short-term “pop” intended.
My sense is that 60% of the rebate will be allocated to debt payment and savings. The remaining 40% is likely to be put toward durable goods and entertainment-related services. Durable spending itself is likely to be split between necessities and “wants”; so, I would think that electronics and appliance retailers would get a boost. On the services front, tourism-related sectors should see a lift, though the effect might be dampened by rising fuel prices and pre-buys for next winter’s home heating costs.
Sustained consumer spending increases when folks feel secure in their jobs. The economy needs sustained spending. A one day wonder (the tax rebate) isn’t going to reduce unemployment. It doesn’t matter whether it’s saved or spent. Paychecks are repeated, week after week, month after month, year after year. Compare that impact to a one-time tax rebate. Who’s being fooled?
Regardless of what people spend their “free” money on, Wal-Mart is in a great position to gain because in addition to selling fun stuff like televisions they also sell necessities like food. Someone could wander in wanting to buy a fancy television or a Wii but could end up walking out with groceries instead. But hey, a sale is a sale. Wal-Mart has a good chance to benefit from this.
While I agree with most that there will be a split between where this “free money” will end up–some portion to pay off old debts that won’t go away easily, the rest on a variety of “feel good” items to enjoy in the short term–a question I’ve yet to see addressed is whether we think there will be a difference in the spend based upon the geographic/demographic differences.
With all of the talk about “food deserts” in urban areas, for folks that come into “free cash” in these environs, where is that money likely to end up? If I’m a retailer with a desire to attract new shoppers from the urban core, I might want to devise a plan to show consumers in this scenario why they can make their dollars go further by shopping at my store. The question is whether anyone is really willing to cater to this specific shopper segment. I’m pretty sure those $1,500 checks sent to shoppers in the urban core will spend just as well as those spent in the suburban & rural areas, the question is who really wants it?
Food and gas price increases have eaten up a lot of the rebate check already. Most of the money will go toward paying bills, with a little bit going for a splurge on dinner or entertainment to relieve the price squeeze for a night or two. So yes, some retailers will see a little bump in sales for one month, but I doubt we’ll see a surge in sales of hard goods of the type that has positive ripple effects throughout the economy.
I don’t think the rebate checks are going to do much on their own for the economy, and considering the size and amount of debt, may have very little impact–except for the psychology of it all.
Retailers and manufacturers may want to position promotions as those little “feel good” moments in life that don’t cost much but have a satisfaction quotient that goes far–like a piece of chocolate (what a great time to introduce a new little chocolate item like Bliss).
Craft a story like, “For little money you can buy an item that makes you feel good, and use the rest to pay your bills.” It connects the retailer with the shoppers, without requiring them to drop the whole check in one place–it’s the right thing to do.
It really depends on how retailers market themselves during this program. We previously talked about HD’s strategy for the stimulus checks and that echoes back to the consumer as a way to save money by going green. I think most people will pay down debt and use it for necessities which opens up the playing field for grocery chains.
The mood for consumers is really bad right now and if a father or mother of 2 isn’t sure he or she will have a job next month, is he or she really going to spend that money on 60 inch HD plasma TV? That cash is destined for either a grocery store or a sock under a mattress. The psychology to spend just isn’t there.
There will be a small impact from the stimulus checks, but the amounts are too low to be anything more than a bandage on a leaking economy. The distinct lack of direction from the top of the government has caused more harm than a $600 check can mend. I hate to be so negative, and I do believe the downturn will be relatively short, but we need a new vision for the economy to ensure a strong and lasting recovery.
If retailers want the rebates spent in their stores, why aren’t more of them offering a bonus to cash the checks at their stores for a merchandise gift card? So far, I have only seen Menard’s here in the Midwest offering a measly 5% incentive.
Why doesn’t Wal-Mart offer 10 to 15% incentive and get the ball rolling?
Unfortunately most Americans have bills to pay, and with high gas prices, only some of this will be spent in our economy.
Many experts predict Wal-Mart will benefit, and this is somewhat troubling, because Wal-Mart’s massive imports from China have put our manufacturers out of business. It’s a vicious cycle, and there seems to be no way to climb out of our dependence on cheap stuff…
America continues to change and unless the workforce can educate themselves to compete for high-tech jobs, the hopelessness will continue on in most of the rust belts all over America, and no stimulus will begin to address this concern.
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I don’t think these rebate checks will make much of an impact. First of all they are only giving them to low income people who are below $75,000 to $100,000. I think the most anyone can get is something like $1,200. Some are only getting $300. That’s a day’s pay for a lot of people. So basically we are giving people an extra day’s pay and it’s suppose to cure the economy? Sounds more like buying votes.
I would guess that most BrainTrust panelists won’t be seeing a nickel of this tax rebate. What answer should I give? That it will help keep an unfortunate family in their sub-prime mortgaged home for two more weeks?
The economy is hurting some a lot more than others. Many of the ones not being hurt won’t receive a stimulus check anyway and the ones about to lose their house have much bigger problems facing them. But I think the vast majority of Americans will probably spend at least some of their rebate on discretionary things that they wouldn’t have bought otherwise. So it should achieve most of what it is intended to do and that is give the economy a lift, but probably a very short and temporary one.
Yeah, nothing will work, it’s not enough–that’s the story everyone is jumping on.
I say you’re wrong. Even if–if–people choose to spend down debt, that still frees up money they would have been paid towards that debt. Consumers will feel richer which is bound to help the economy.
Get off the bandwagon of the sky is falling–it isn’t good for business. Talking heads have put us where we are today since they began drumming on the big R word.
It used to be the role of news to report what happened. Now the money is made in making us afraid of what we didn’t know that could kill us.
Turn off the TV and go sell something instead of telling the rest of us it can’t be done. Correct the economy by servicing your customers!
I agree that entertainment and travel are good categories to enjoy a little upside at retail, but so is home and garden for those who may get the checks during the annual planting season. I sure could use a little bright color in the yard to lessen the “dreary mood” I can’t seem to shake. Trouble is, the AMT tax burden this year is higher than last year, so any rebate will go back in the bank to offset that IRS check I wrote yesterday. In my home, all spending is under scrutiny, and very few discretionary purchases will be made.
Rebate checks may provide a temporary rise in retail spending, if any. Unless long term structural changes in the economy are addressed, efforts such as rebate checks are short lived! Will we ever learn to think in terms of addressing root cause(s) and long time frames?
I also think the rebate checks will turn into cash in the wallet. That means it will go for gas, food and maybe a restaurant dinner. It will be mostly gone by the time the next credit card bill arrives, but will feel good in the wallet while it lasts. So consumer sentiment polls may show an effect. I don’t think it would make much of a dent in paying down most credit card balances.
In my opinion, retailers like Wal-Mart will derive benefit from the tax stimulus program because, regardless of what consumers are saying–i.e., they will use it to pay bills or to buy text books for college students, etc–the fact is that most consumers “spend” faster than they can save, or pay off bills. It’s simply a matter of realistic consumer behavior.
On the other hand I do not predict that the non mainstream retailers will gain much benefit for the package. It’s an impulse buy.
Wal-Mart will see some increase with this stimulus package. I disagree that people will apply to debt or save the money. I think many will look at it as “free” money and use it for items they have been wanting.
Last week, while on a business trip to Orlando, it didn’t feel like a economic downturn. The flight was full (families with kids in tow) and the hotel was crowded with families on spring break. Let’s face it! The reason the housing market is in such bad shape is because many have over-spent and bought homes they could not afford in the first place. The same with this package; my prediction is over 70% will spend.
Unlike other recent recessions or economic slowdowns, today’s situation is also driven by sharp inflationary pressures on essentials like fuel and food. For anyone old enough to remember the “stagflation” of the early 1970s, there are some similarities. It’s hard to see pricing pressures retreating anytime soon, even if you believe that overall spending will start to rebound during the second half.
So it’s not a reach to see that consumers will be more likely to spend their rebate checks on basic necessities like groceries rather than discretionary items. Wal-Mart is indeed in a good position to take advantage of this trend, as its recent positive sales results demonstrate. The bigger question is whether consumers will spend their rebate checks at all or use them to retire debt. Frankly, some retirement of debt would be more healthy for the consumer economy over the long haul even if it doesn’t provide the short-term “pop” intended.
My sense is that 60% of the rebate will be allocated to debt payment and savings. The remaining 40% is likely to be put toward durable goods and entertainment-related services. Durable spending itself is likely to be split between necessities and “wants”; so, I would think that electronics and appliance retailers would get a boost. On the services front, tourism-related sectors should see a lift, though the effect might be dampened by rising fuel prices and pre-buys for next winter’s home heating costs.
Sustained consumer spending increases when folks feel secure in their jobs. The economy needs sustained spending. A one day wonder (the tax rebate) isn’t going to reduce unemployment. It doesn’t matter whether it’s saved or spent. Paychecks are repeated, week after week, month after month, year after year. Compare that impact to a one-time tax rebate. Who’s being fooled?
Regardless of what people spend their “free” money on, Wal-Mart is in a great position to gain because in addition to selling fun stuff like televisions they also sell necessities like food. Someone could wander in wanting to buy a fancy television or a Wii but could end up walking out with groceries instead. But hey, a sale is a sale. Wal-Mart has a good chance to benefit from this.
While I agree with most that there will be a split between where this “free money” will end up–some portion to pay off old debts that won’t go away easily, the rest on a variety of “feel good” items to enjoy in the short term–a question I’ve yet to see addressed is whether we think there will be a difference in the spend based upon the geographic/demographic differences.
With all of the talk about “food deserts” in urban areas, for folks that come into “free cash” in these environs, where is that money likely to end up? If I’m a retailer with a desire to attract new shoppers from the urban core, I might want to devise a plan to show consumers in this scenario why they can make their dollars go further by shopping at my store. The question is whether anyone is really willing to cater to this specific shopper segment. I’m pretty sure those $1,500 checks sent to shoppers in the urban core will spend just as well as those spent in the suburban & rural areas, the question is who really wants it?
Food and gas price increases have eaten up a lot of the rebate check already. Most of the money will go toward paying bills, with a little bit going for a splurge on dinner or entertainment to relieve the price squeeze for a night or two. So yes, some retailers will see a little bump in sales for one month, but I doubt we’ll see a surge in sales of hard goods of the type that has positive ripple effects throughout the economy.
I don’t think the rebate checks are going to do much on their own for the economy, and considering the size and amount of debt, may have very little impact–except for the psychology of it all.
Retailers and manufacturers may want to position promotions as those little “feel good” moments in life that don’t cost much but have a satisfaction quotient that goes far–like a piece of chocolate (what a great time to introduce a new little chocolate item like Bliss).
Craft a story like, “For little money you can buy an item that makes you feel good, and use the rest to pay your bills.” It connects the retailer with the shoppers, without requiring them to drop the whole check in one place–it’s the right thing to do.
It really depends on how retailers market themselves during this program. We previously talked about HD’s strategy for the stimulus checks and that echoes back to the consumer as a way to save money by going green. I think most people will pay down debt and use it for necessities which opens up the playing field for grocery chains.
The mood for consumers is really bad right now and if a father or mother of 2 isn’t sure he or she will have a job next month, is he or she really going to spend that money on 60 inch HD plasma TV? That cash is destined for either a grocery store or a sock under a mattress. The psychology to spend just isn’t there.
There will be a small impact from the stimulus checks, but the amounts are too low to be anything more than a bandage on a leaking economy. The distinct lack of direction from the top of the government has caused more harm than a $600 check can mend. I hate to be so negative, and I do believe the downturn will be relatively short, but we need a new vision for the economy to ensure a strong and lasting recovery.
If retailers want the rebates spent in their stores, why aren’t more of them offering a bonus to cash the checks at their stores for a merchandise gift card? So far, I have only seen Menard’s here in the Midwest offering a measly 5% incentive.
Why doesn’t Wal-Mart offer 10 to 15% incentive and get the ball rolling?
Unfortunately most Americans have bills to pay, and with high gas prices, only some of this will be spent in our economy.
Many experts predict Wal-Mart will benefit, and this is somewhat troubling, because Wal-Mart’s massive imports from China have put our manufacturers out of business. It’s a vicious cycle, and there seems to be no way to climb out of our dependence on cheap stuff…
America continues to change and unless the workforce can educate themselves to compete for high-tech jobs, the hopelessness will continue on in most of the rust belts all over America, and no stimulus will begin to address this concern.