Bad News For Retail: Consumers Aren’t Going to Buy Clothes & Shoes With Their Tax Savings

While it’s well understood that businesses across the U.S. will enjoy a healthy nudge to their balance sheets thanks to federal tax reform — which will reduce the corporate tax rate from 35 percent to 21 percent — understanding the impact of the new bill on individual consumers has been more complicated.

In addition to the fact that it is nearly impossible to assign a general percentage to the amount of tax dollars most individual tax payers will save in the years and months ahead, there hasn’t been a general consensus about what consumers will do with their kickbacks — however large or small they may be.

And since the consumer-driven retail sector is among the industries expected to benefit most from savings — having previously enjoyed few credits and savings compared with other industries — not knowing whether consumers will even spend on clothes, shoes and other pressured areas could dampen the celebratory mood.

Antony Karabus, CEO of Chicago-based HRC retail advisory, said he is banking on a tried-and-true consumer-spending theory: If shoppers believe a savings — such as those generated from income taxes — is permanent, they are more likely to spend that savings. If they perceive a kickback to be temporary, they will save it.

“My gut instinct with these tax breaks is that they’re transient because if [the government] gives it to you with one hand, they [often] take it away with the other, whether it’s through healthcare or something else,” Karabus said. “They have to find a way to pay for it.”

And the news gets even grimmer for clothing and footwear sellers whose profits have been chipped away by categories such as dining and travel: If consumers do decide to “live a little” with their savings, they’ll likely take the experiential route, according to Karabus.

“People have so much debt that I don’t think they’re going to spend it all,” he said. “They may spend some of it on a meal out or something they haven’t done in a long time — [in other words], an experience.”

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