Bigger tax refunds may lead to better-than-usual furniture business this season
Date: Friday, January 11, 2019
Source: Furniture Today
Should furniture stores look for better tax refund business this year?
A new report out from Wedbush Securities analysts Seth Basham and Nathan Friedman suggests this could very well be the case, and here’s why:
The 2018 Tax Cuts & Jobs Act cut income taxes for most taxpayers starting last year, but the vast majority of them didn’t adjust their withholdings. That means the impact on tax refunds, along with retail spending, will like be bigger this year — possibly much bigger.
“We estimate a 22% (year-over-year) increase in tax refunds that could boost retail sales 1.04% in 2019," Basham and Friedman said in the report, noting that this gain would be concentrated in March. That increase compares with a 0.86% refund-fueled boost in sales in 2018.
Put another way, the analysts estimated tax refunds this year could inject an incremental $55 billion or so into the economy the first half of this year, and they point to a study by University of Michigan economists Matthew Shapiro and Joel Slemrod as reason to believe the number could actually be bigger, as the study shows consumers are more likely to spend rather than save their "more visible rebates” than small increases in take-home pay.
There are other factors, too, pointing to this notion of greater discretionary spending power, they said, specifically lower energy prices and wage growth. All told, the Wedbush analysts forecast a 3.4% increase in consumer discretionary spending power this year, up from the meager 0.4% increase the year before.
The report doesn’t say furniture stores, specifically, will be big beneficiaries of this greater buying power, but it does point to retailers that serve “low- to mid-income consumers,” as those most likely to benefit — not only because these consumers will enjoy bigger refunds and lower gas prices, but also because they’re more likely to go out and spend the windfall rather than save it.
I talked to Larry Zigerelli, CEO of fast-growing, Fort Smith, Ark.-based FFO Home, about the Wedbush report and he said he’s hearing the same thing.
“The timing might be a little later,” he said, noting the impact usually hits soon and continues on into February, but the ongoing government shutdown could push those refund checks back some.
“But we’re ready,” he said. “We can turn on a dime with our marketing. We expect a big tax season because we’re a value retailer.”
More than 60% of Top 100 company's sales are financed, among the highest rates in the industry, Zigerelli said. That’s another factor working in its favor during tax season as no- or low-credit consumers come in with their tax money and take advantage of the finance offers to buy more than the cash value of the check.