Chicago Tribune

CHICAGO -- Ask consumers what they plan to do with their tax rebate checks and most will tell you they intend to pay down debt or save it. They also will tell you they plan to lose 20 pounds and call their mothers more often.

Retailers, well-versed in consumer psychology, are betting that once the checks arrive, a flat-screen TV or iPod or colorful spring dress will sound more appealing than writing a larger check to the credit card company.

Sears Holdings Corp recently announced it will convert tax rebate checks into gift cards at cash registers in its stores and online and add on another 10 percent. The promotion is slated to run May 14 to July 19 at Sears, Kmart and Lands' End. The gift cards have no expiration dates or fees, but shoppers must purchase a gift card equal to the entire amount of their rebate check, the company said.

Wal-Mart Stores Inc., the nation's largest retailer, is gearing up its customer service centers to cash tax rebate checks in its stores and to run special promotions to encourage spending. Home Depot Inc. is planning a campaign to encourage shoppers to use their tax rebates to buy eco-friendly products such as programmable thermostats.

"It's a tough economy and retailers are going to be aggressive," said Mike Gatti, executive director of the Retail Advertising and Marketing Association, a Washington D.C.-based trade group. "Needless to say there will be more promotions and they will be out there fighting for the rebate checks."

Since the federal government decided in February to mail $106 billion in tax rebate checks mostly to lower and middle-income households, economists and retailers have been trying to figure out how much of that money will go back into the economy.

In a flurry of surveys since that February decision, Americans tell pollsters they have earmarked most of the unexpected cash -- up to 75 percent in some surveys -- for things like paying down their credit cards or saving for college tuition. But some economists aren't buying it. There is a growing belief that once the check arrives, financially weary consumers will treat themselves.

Economists called it the "lipstick factor," referring to the historical rise in lipstick sales during tough economic times as women look for an affordable way to cheer themselves up. After a long winter of high gasoline prices and housing market woes, consumers could be in a mood to splurge.

"One month ago, most consumers stated they plan to pay down debt," said Marshal Cohen, chief industry analyst at NPD Group, a Port Washington, N.Y.-based market research firm that surveys customers weekly. "Today, the number is growing toward rewarding themselves."

Laura Hayes has been counting the months until her $600 rebate check arrives. The Chicago non-profit executive is putting it toward a laptop computer.

"I feel like I'm always watching my budget," said Hayes, 30. "I felt guilty about buying it myself, but I thought, if I have something extra coming, and my birthday is in May, I should do it. The slow computer at home is driving me crazy."

Chuck Cebuhar of Crystal Lake, Ill., plans to put his rebate check toward a flat-screen television, and if there is something left over, put it in savings.

"We need to replace our TV, so we're going to spend part of it and save part of it," said Cebuhar.

The trick for retailers is to walk the line between persuading consumers to spend and not coming across like they are encouraging already cash-strapped Americans to indulge in something they really can't afford, according to advertising experts. The situation calls for retailers "to be creative," said Bonnie Carlson, president of the Promotional Marketing Association.