Retailers compete for stimulus $$$

As economic stimulus checks hit the bank accounts and mailboxes of U.S. taxpayers, retailers are competing fiercely to attract their share of the estimated $112 billion in consumers’ pockets. The amount is much larger than the 2001 tax rebate, which totaled about $38 billion nationwide.

The U.S. Treasury estimates Michigan’s share of the stimulus pie at $3.8 billion. Anderson Economic Group in East Lansing estimates that 90 percent of Michigan taxpayers who file jointly and 96 percent of individual filers will be eligible for the full rebate.

The big question is what people will do with the money—nationally and in Michigan. In various national polls, only 20 to 38 percent of respondents said they will spend it. The biggest group—31 to 51 percent, depending on the poll—said they will use it to pay off debt or bills.

An online poll conducted by the Grand Rapids Press showed on April 30 that only 25 percent plan to spend the money, either on necessities or something fun, while 53 percent plan to use it to pay down debt, reflecting a more cautious attitude than in the nationwide polls.

However, what consumers say they will do with such “windfall” money and what they actually do are often very different, if past behavior is any guide.

Nick Souleles, a professor at the Wharton School of Business, said Americans spent two-thirds of the stimulus rebates of 2001 within nine months of the distribution. Only about one third of consumers had told pollsters they planned to spend the money.

The National Retail Federation expects approximately $43 billion—about 40 percent—of the economic stimulus money to be spent with the nation’s retailers, making this period rank as the third-biggest selling event for retailers this year, after Christmas and back-to-school spending and ahead of Valentine’s Day and Mother’s Day.

If 40 percent of Michigan’s share is spent in state, that’s about $1.52 billion the state’s retailers can look forward to depositing.

While the Bush administration hopes consumers will spend the money quickly and thus stimulate the economy, any infusion of money has an indirect effect even if much of it is used to pay down credit card debt.

“Even debt repayment could be a good thing if it eases consumer anxiety about spending down the road,” said MRA CEO and President James P. Hallan. “With more bills paid off, people may be better positioned for spending later this year.”

After the 2001 rebate, Souleles and his colleagues looked exclusively at credit card levels and found a significant drop in credit card balances after the rebates. However, most consumers who paid down credit cards with their 2001 refund had put the money back on their credit card within nine months.

Retailers respond
A recent Michigan Retail Index survey showed higher optimism for the 2nd Quarter because of the checks. However, most believe the boost will be modest.

Retailers of all sizes and types are expected to have sales events and other promotions in connection with the stimulus checks, although the efforts of smaller retailers may be less visible than their national and regional competitors.

Fred Marx, of marketing and PR firm Marx Layne in Farmington Hills, says smaller retailers can do much to capitalize on the extra spending power of their customers. While the airwaves may be crowded with ads from national chains, those with less “media muscle” will—or should—aggressively use direct mail, e-mail and every other marketing tool they have to capture the attention of their customer base.

“They may want to offer a small gift with a purchase over a certain amount, offer gift cards at a small discount or have a 10-percent-off sale, but anything that reminds customers of their extra money is smart,” said Marx.

Marx expects Michigan retailers to do as well as retailers in the rest of the nation during this season of increased spending.

“There’s no geographic aspect to this event. Michigan consumers are like everyone else, psychologically,” said Marx. “This will feel to most people like ‘found money,’ which is much easier to spend. It’s good news for consumers and retailers.”

If anything, Michigan residents may be more likely to spend their rebates quickly, since there is more pent-up demand here, added Marx.

“There are people here who have been waiting for a reason to buy that new watch or high-definition TV they’ve had their eye on, or who want to freshen up their wardrobe after pinching pennies for a while. These checks might be the impetus these shoppers need to buy what’s on their wish list.”

Marx also thinks the timing is good, since most shoppers will have their checks in time for the busy Mother’s Day, Father’s Day, graduation and wedding season that characterizes spending in May through July.

To entice customers to spend the windfall at their stores, many national retailers are using tactics that worked in 2001: advertising campaigns that focus on the stimulus checks, sales events and offers to cash the check in the store for no fee, as Wal-Mart and JC Penney will do.

Other retailers are raising the bar with new tactics. Meijer, Spartan Stores, Kroger, Sears and Kmart are all offering consumers an extra 10 percent for every $300 gift card they buy with their checks.

Such retailers clearly target the belt-tightening crowd by promising to help them make their tax rebates go further on everyday necessities such as food and general merchandise.

Linking discounts to gift cards is especially savvy, says MRA’s John Mayleben, because shoppers usually spend more than the gift card’s value when using one.

Home Depot is urging customers to use rebates to invest in the environment and cut energy bills. It is offering discounts through July on compact fluorescent light bulbs and Energy Star appliances. That helps “take a short-term stimulus and turn it into a long-term investment,” said spokeswoman Jean Niemi.

Sam’s Club and Staples are targeting the small-business community. Sam’s Club conducted a survey of its small-business customers, tied specifically to the rebate checks, to determine what prices and products appeal the most to its shoppers in the coming months. Staples is offering discounts on purchases of its office furniture, with the discount increasing for larger purchases.

It may be too much to hope for a buying frenzy, since some of the stimulus money will be absorbed by the higher cost of gasoline and food. But the direct and indirect impact of the stimulus checks on the economy will be very welcome.