The Norman Transcript
April 26, 2008 11:30 am
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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.
Officials at Macy's Inc., Best Buy Corp. and Target Corp. said they have no plans to adjust their advertising or promotions to go after the tax rebate money. Still, advertising experts say that some retailers could choose to increase the frequency of their ads in May and June, typically slow months in the retail industry, without directly referring to the tax rebates.
"Certain retailers might be afraid of overtly advertising for consumers to spend their rebates with them for fear of looking like they're not doing the responsible thing, that being letting people use the money to pay off some debt," said Jim Schmidt, creative partner at Downtown Partners, a Chicago advertising agency.
J.C. Penney Co., for example, has no plans to mention tax rebates in its ads. But the moderate department store chain intends to step up an already aggressive back-to-school marketing campaign to coincide with the arrival of the tax rebates, said Quinton Crenshaw, spokesman for the Plano, Texas-based retailer. Penneys Chairman and CEO Mike Ullman said in a February earnings call with analysts that the retailer intends to "compete vigorously" for the dollars.
Another tactic is to tap into the green trend. U.S. Rep. Brian Baird (D-Wash.) introduced a House bill that encourages consumers to spend their rebates on eco-friendly products and recruited Home Depot, Lowe's Cos. and Sears to sign on to the campaign. The marketing effort is a safe way for retailers to urge spending by framing it as helping the environment.
"You're helping both the Earth and your wallet," said Jean Niemi, a spokeswoman for Atlanta-based Home Depot.
The National Retail Federation, which lobbied heavily in favor of the economic stimulus package, predicts consumers will spend about $43 billion, or 40 percent, of their tax rebates. The figure, if reached, would make the tax rebate the third-biggest retail event after Christmas and back-to-school spending, according to the Washington D.C.-based retail trade group.
When the federal government sent out rebate checks during the last recession in 2001, several studies found that consumers expressed their intention to save but in fact spent the checks relatively quickly. Based on that trend, economist Scott Hoyt believes consumers will spend about two-thirds of their rebates within three months of getting it. just as they did in 2001.
"Our take is there is a significant number of consumers that will tell surveyors that they will pay down debt or save," said Hoty, director of consumer economics at Moody's Economy.com "When they get the check, they will do that to some extent, but their credit card balance will be back up where it was three months hence."
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