Checks and Economic Balances

These days it’s a minor miracle when Congress agrees on anything. But with our economy weakening and retail sales beginning to stall, Congress and the president came together quickly last month to pass an economic stimulus package. In addition to tax incentives for businesses, the $152 billion measure provides $106 billion in immediate relief for consumers struggling with a perfect storm of high gas prices, inflation and a weak housing market.

Now that Uncle Sam’s check is in the mail — at least figuratively — the big question becomes, what will Americans do with the money? Will shoppers go on a spending spree? Will they use it to pay down debt? Or will the cash simply be stashed away in a savings account? The answer appears to be “all of the above.”

An NRF survey conducted by BIGresearch found that consumers are thinking long-term. In addition to spending $30 billion in rebate money to pay down debt, Americans will set aside $20 billion for savings. While that will put shoppers in a better position for the future, there’s also good news for retailers who are experiencing soft sales this year: According to the survey, Americans will spend 40 percent of their tax rebate checks, which is expected to provide the economy with an immediate $42.4 billion shot in the arm.

Opportunities abound for a piece of the pie, and while the first rebate checks won’t arrive in homes until May, the time to plan is now. Much like the holidays, retailers will have to provide incentives to bring in consumers, so smart marketing and merchandising will be key. Retailers may want to consider cashing checks in stores or holding special promotions online to stand out among competitors.

It should be no surprise that most shoppers plan to be practical with their rebate checks. In fact, 20 million people will be spending rebates on necessities like groceries, while 12 million plan to spend some of it on gas. Our research suggests that Americans will not be treating these rebates as “free money”; instead, they will be trying to make smart decisions on what to buy and where to spend.

Americans’ focus on practicality gives an advantage to discounters, supermarkets and warehouse clubs. But department stores and specialty stores may also benefit strongly from families who receive tax credit checks of $300 per child. Many parents who receive rebates because of their children want to spend it on them.

The survey results weren’t all grim: Some consumers receiving checks will splurge, with more than 10 million people planning to head on vacation and 3.5 million going to a spa. Creative retailers, no doubt, will be trying hard to get consumers to spend that money in stores instead.