By Mark W. Vigoroso E-Commerce Times
08/09/01 4:52 PM PT
The biggest contribution of the U.S. tax rebates to e-tailers 'will be to sustain current
online spending, rather than driving it back up,' a Forrester analyst said.
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With tax rebate checks from the U.S. government beginning to arrive in consumer mailboxes,
some e-tailers are hoping the extra cash will make its way to their bottom lines.
According to many industry experts, however, online businesses should not head for the bank quite
yet. Due to the nominal amount of the rebate checks, few analysts suggest that the rebate
money will produce a significant online windfall.
Other experts point to the precarious state of the U.S. economy and say that the rebate
money is likely to go directly to savings and debt-paying, rather than into the retail
sector.
Dr. Vijay Kanabar, associate professor of computer science and e-commerce at Boston
University, sees the tax rebate checks as negligible economic drivers at best.
"We have a $10 trillion economy," Kanabar told the E-Commerce Times. "The tax cut is a
drop in the bucket."
According to Peter Navarro, associate professor of business
and government at the University of
California-Irvine, "the problem now is that people are
uncertain about where we are going, so they are likely to sock the rebate money away in
savings."
Home Deposit?
Home Depot (NYSE: HD) is one retailer trying to
capture some of President George W. Bush's good tidings, calling out to its online
shoppers with the promotion, "Why wait on your tax rebate check? Shop online now."
Home Depot is eyeing the $38 billion in tax rebates that U.S. taxpayers began receiving in
July, per order of the Economic Growth and Tax Relief Reconciliation Act of 2001 that was
signed by Bush on June 7th. Single taxpayers are receiving a maximum of $300, heads of
households $500, and married couples filing jointly $600.
In June, Home Depot commissioned an independent survey to determine what homeowners were
likely to do with their rebate checks. The survey revealed that after using the funds to
pay bills and taxes, homeowners would rather put the money towards home improvement
projects rather than savings, vacations, new clothing or electronics. In fact, 30 percent
of respondents would invest in their homes, according to the survey.
Clicks Resemble Bricks
Home Depot spokesperson Don Harrison told the E-Commerce Times that the "Why wait"
campaign was just phase one of Home Depot's efforts to lure shoppers. The company will
soon offer check-cashing services, so consumers can apply their rebates toward in-store
or online purchases.
While much of Home Depot's sales are currently in-store, recent studies indicate that
online retail spending patterns are beginning to mirror offline patterns.
Greenfield Online, an Internet-powered market
research firm, has noticed this trend in its online spending study, the Digital Consumer
Shopping Index.
Greenfield spokesperson Gail Janensch told the E-Commerce Times that the last 12 quarters
of data illustrate strong parallels between online and offline retailing trends.
No Remedy
Forrester research director James McQuivey said that given the current
slump in online as well as offline retail spending,
no spike resulting from marketing efforts like those of Home Depot will register as
sector growth.
"We might normally expect some convenience purchases to increase, like books, music and
apparel, since folks will have extra cash in their pockets," McQuivey told the E-Commerce
Times. "However, given that those categories have all declined as of late, any lift that
a specific category experiences will feel like a reprieve, not genuine growth."
Although Bush's tax program is designed to cut taxes by about $1.6 trillion over 10 years
by reducing marginal tax rates, this year's rebate check will be the only one-time influx
of cash in consumers' wallets.
"The tax cuts are designed to forestall any further decline in the economy," said
McQuivey. "Their biggest contribution will be to sustain current online spending, rather
than driving it back up."
Travel, By George
Boston University's Kanabar suggested that some consumers might make travel plans with
their rebate checks in hand, searching for bargains from online vendors like Travelocity
and Expedia.
Honolulu, Hawaii-based travel store Cheap Tickets
(Nasdaq: CTIX) is one e-tailer banking on Kanabar's suggestion.
On July 22nd, just before the first batch of rebate checks arrived on American doorsteps,
Cheap Tickets launched an e-mail campaign, greeting consumers with, "By George ... we've
got it! The perfect way to say 'Thanks, George' for your tax-rebate check is on a Fall
vacation."
The company's "Thanks, George" specials are priced $300 or less, and purport to "make
spending that rebate downright patriotic."
Greenspan Holds Cards
Regardless of the success or failure of individual e-tailer marketing efforts, it is
highly likely that any resuscitating effect that Bush's tax program might have on the
U.S. economy will not be felt for many months.
Kanabar said that an interest rate cut by the Federal Reserve would go much further and
quicker towards spurring online and offline retail spending than the tax cut will.
"As is often the case, good politics was bad economics," added Navarro.
One Year Ago: Study: E-tailers Flunk Customer Service Test August 09, 2001
According to Gartner, customers disappointed at a Web site pick up the
phone, only to find a service rep who does not have information about
their Web transactions.
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