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Rebates Not Stimulating Retailers

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The Associated Press

The Tampa Tribune

Published: June 3, 2008

NEW YORK - Apparel retailers who once saw the government's economic stimulus plan as way to heat up winter's dismal sales are wondering if it's ever going to get warm.

For companies that hoped consumers would spend their $110 billion in stimulus cash on new clothes, those hopes seem to be fading - particularly as the average price of a gallon of gas nears $4.

"The retailers are being very, very cautious as far as any expectations," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle. "I don't think anyone is hanging their hat on the effects of the stimulus package."

The first indication of whether the checks are helping will come Thursday when retailers report their May sales figures.

"I think you're going to see the impact of the stimulus checks in May's numbers and then it's going to trail off," said Chris Donnelly, a partner in the retail practice at consulting group Accenture.

Even retailers say that if they get any boost from the rebate checks, it may not last long.

J.C. Penney Co. told investors during a first-quarter earnings call last month that "the benefits will be modest and short-lived."

"We hope to get some benefit from it but to be realistic about it, much of what was the original intent has been dissipated by the activities in the economy between the legislation passing and the check being received," said Chief Executive Mike Ullman.

Ullman specifically noted the rise in gas prices. The average price of a gallon of gas has steadily climbed from $3.19 a year ago to $3.96 on Friday. With the summer travel season ahead, that has already spiked to $4 a gallon in some parts of the country.

Meanwhile, consumers have been paying more for food and are struggling to deal with lower home equity and higher mortgage payments. According to Commerce Department data released Friday, Americans are using most of their money just to keep up with inflation.

Personal income and spending climbed just 0.2 percent in April, even as the stimulus money started going out late in the month - but inflation sapped up nearly all of the additional income and spending power. Excluding the effect of inflation, there was no gain in spending for the month, according to the data.

With the economy sliding, surveys have shown many people plan to use the stimulus checks on debt or to buy necessities. But that doesn't mean they won't spend at least some of the money on something they want.

In 2001, when the government last issued economic stimulus checks, consumers spent 23 cents of every dollar on apparel, making it the largest spending category, a 2005 University of Pennsylvania study found.

"Those surveys in which people say they're going to save the rebate? They said the same things in 2001," said Nicolas Souleles, associate professor of finance at the Wharton School of the University of Pennsylvania and one of the authors of the 2005 study.

Most clothing retailers are now looking ahead to the back-to-school season - one of the biggest sales times of the year - in a last bid to garner the stimulus check money.

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