Why Retailers Shouldn’t Count on a Big Sales Boost From Tax Refunds This Year

U.S. consumers continue to flex their power-over-purchase muscle.

The latest proof: More Americans than ever plan to hold on to their tax refunds this year rather than spending their kickbacks from the IRS, according to an annual tax refund survey released today by the National Retail Federation and Prosper Insights & Analytics.

Of the 65 percent of taxpayers expecting a refund, 49 percent say they would put it into savings, the survey found. That’s up from 48 percent last year and the highest level in the 12-year history of the study.

The findings also back up early expert commentary suggesting that U.S. consumers are also likely to save the additional tax savings — as opposed to splurging on clothes and shoes — they will enjoy from federal tax reform.

“Tax return season is a time when consumers plan and prioritize financially, whether it is paying down debt or saving for a rainy day,” NRF president and CEO Matthew Shay said. “With the passage of tax reform and the expectation of more disposable income, we expect to see consumers prioritizing how and when they spend their hard earned dollars, especially during the back-to-school and holiday seasons.”

About 35 percent of those expecting a refund plan to pay down debt with their refunds this year, in line with last year and the lowest level since 2016, the NRF said. Only 22 percent will spend this year’s refunds on everyday expenses, and 12 percent will use the money for a vacation.

Where fashion spending is concerned, 10 percent will “splurge” on dining out, trips to a spa or apparel; 9 percent will invest in home improvements; and 8 percent will make major purchases such as a television, furniture or a new car, the study found.

“Younger consumers are being more mindful about their hard-earned money, especially those 18-24 who have already filed their taxes this year, higher than any other age group,” Prosper EVP of strategy Phil Rist said. “Although this group is focused on allocating a portion of their refunds to savings, they are also more likely to use them for everyday expenses compared with any other age group.”

For many firms in the retail sector, tax refunds have historically served as a significant boon to business — putting extra cash in the hands of shoppers and motivating them to spend more on products. (For example, last year, sneaker retailers such as Finish Line and Foot Locker said they were hurt by delays in tax refunds by the IRS.)

But a recent shift toward experiential spending has threatened potential gains for sellers of footwear and apparel — losing business to service industries such as dining and travel.

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