Retailers Hope Consumers Spend Rather than Save Tax Refunds - eMarketer

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Retailers Hope Consumers Spend Rather than Save Tax Refunds

Increase in the number of people planning to save their tax refund is a potential concern for retailers

March 26, 2014

Following a tepid start to the year as severe weather held back sales, retailers are hoping consumers treat themselves when they get their tax refund this year. Several retailers, most notably Wal-Mart, mentioned that the payroll tax hike and delayed filings due to the fiscal cliff deal significantly hurt their businesses last year as consumers put off discretionary purchases. Things are looking much better so far in 2014: As of March 14, the IRS had processed 5.8% more returns year over year, and over 61 million people in the US, or 84.3% of those who had filed, had received tax refunds averaging $2,917. That was up 1.9% from March 15, 2013, and total consolidated refunds distributed—$179.79 billion—were 4.2% higher year over year.

US Tax Refund Statistics, 2009-2014

Most consumers are hoping to be responsible with their refunds. The National Retail Federation annual Tax Returns Survey conducted by Prosper Insights & Analytics found that most of those getting a refund would put it toward savings (46%), paying down debt (37.7%) and everyday expenses (25.3%). The number of people planning on saving their refund has increased for six straight years and was the highest in the survey's history. On the other hand, 12.8% of those expecting a refund planned to put it toward a vacation, and 10.7% said they would splurge on a major purchase—the lowest percentage in the survey’s history. Those ages 18 to 24 were the most likely to both save (57.7%) and spend on major purchases (18.3%).

In a recent survey by CarMax, 9% of consumers said they would spend their refund on home improvements. Both The Home Depot and Lowe’s are gearing up for their busiest season, as they plan on hiring a combined 105,000 seasonal workers this year. Auto dealers should also benefit, as CarMax found that roughly one in six consumers would likely buy a car.

A similar survey by Edward Jones found that 18- to 34-year-olds were the most likely to spend their refund on “fun” things such as clothes, entertainment and restaurants.

Even a small slice of the tax refund pie means big business for retailers: If consumers spend just one-quarter of the $300 billion-plus they receive, that's still more than the annual spending on back-to-school and back-to-college combined.

eMarketer compiles data on 225+ retail companies for a range of metrics, including sales, store productivity, earnings, ad spending and employment. The data comes from SEC filings and earnings reports. All figures are net.

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