Wanted in stores: Your tax rebate money

With sales slumping, retailers will aggressively court shoppers as the checks go out in the coming weeks.

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By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The government's tax rebate stimulus is weeks away from your mailbox. But retailers worried about a consumer slowdown are already planning several ways for you to spend that windfall in their stores.

Lowe's, the No. 2 home improvement retailer, has kicked off its spring campaign, called "Welcome Back Spring," about three weeks early this year, getting customers primed to spend that rebate money.

"We want to get people excited about spending this spring and summer," said Lowe's spokeswoman Chris Ahearn, adding that the retailer was considering allowing customers to cash their rebate checks in Lowe's stores.

J.C. Penney (JCP, Fortune 500) is also considering a check-cashing service for its customers' rebate checks.

"We offered a similar service for our customers who received the child tax return checks back in 2003," spokesman Quinton Crenshaw told CNNMoney.com.

Although Crenshaw declined to offer details about any other incentives, Penney CEO Mike Ullman recently told analysts that the retailer would "obviously compete vigorously" for the stimulus money.

"It couldn't happen at a better time for [us] because it sounds like the checks will go out over a 10-week period, beginning in late May, which leads right into back to school [season] for us," Ullman said.

Meanwhile Home Depot (HD, Fortune 500), the top home improvement merchant, is combining a green pitch with its rebate-grabbing effort.

Spokeswoman Jean Niemi said Home Depot has partnered with Rep. Brian Baird, D-Wash., to support a resolution encouraging consumers to invest their tax rebates in their homes through energy efficient products and services.

"This effort will help turn a short term stimulus into a long-term investment by saving consumers money over time through reduced electric bills and energy costs," Niemi said.

She said the retailer plans to offer special values on energy-efficient products like lightbulbs, home appliances and springtime projects starting in May and running through the summer.

"Retailers shouldn't treat the rebate money as a one-time event but as an opportunity to really build longer-term customer loyalty for their brand," said Terrie O'Hanlon, chief marketing officer with Manhattan Associates.

O'Hanlon's firm has been advising one-third of the nation's top 100 retailers on just how to attract the rebate money, which isn't exactly chump change.

The tax rebate checks will distribute about $106 billion, or between $600 to $1,200 to some taxpayers, beginning sometime in May.

The National Retail Federation (NRF) estimates that about $43 billion of that total amount will be directly pumped into the retail sector.

"[The] checks should have the desired effect of both bolstering the economy in the short term and putting consumers in a better position to spend for the future," said NRF CEO Tracy Mullin.

According to the NRF, the additional $43 billion spending stimulus would potentially rank as the third-biggest selling event for retailers this year, after Christmas and back-to-school spending and ahead of Valentine's Day and Mother's Day.

Other big chains such as Wal-Mart and Circuit City (CC, Fortune 500) said they too are crafting sales strategies tied to the government rebate checks, but were not yet ready to divulge all the details.

Wal-Mart (WMT, Fortune 500) spokeswoman Melissa O'Brien hinted that the world's largest retailer would "continue to provide additional savings to help stretch those added dollars further this summer."

Meanwhile, wholesale club operator Sam's Club is conducting a survey of its small-business customers this month, tied specifically to the rebate checks, to determine what prices and products appeal the most to its shoppers in the coming months.

"We want to help small business owners to use the rebate money in a way that benefits them in the long term," said Susan Koehler said, spokeswoman for Sam's Club, which is a division of Wal-Mart.

Grocery chain operator Stop & Shop, a unit of the Dutch company Ahold (AHONY), plans to lower prices "systematically in our stores, aisle by aisle," said spokesman Robert Keane.

The retailer recently mailed its customers a discount coupon offering 5% off groceries. Keane said the company planned to offer more of similar promotions on those food and beverage products that have seen sharp price increase.

Although the additional stimulus may not be enough to completely prevent the overall softening in retail spending, analysts said it could at least slow down a downward spiral.

Historically, when consumers have gotten such a windfall in the past, many have used half the money to pay down "high-cost debt," said Craig Johnson, president of retail consultancy Customer Growth Partners.

Also, the higher cost of gas and energy is likely to offset the incremental benefit of the stimulus money to household budgets.

Nevertheless, Johnson advises merchants to take advantage of the stimulus package, especially since he actually anticipates a spending rebound later in the year from the combined effect of rebate checks, declining interest rates and the elimination of home heating bills.

Retailers who aggressively court consumers for their rebate money will set the tone for their business in the second half of the year, he said, which also includes the crucial fourth-quarter holiday shopping season.

Manhattan Associates' O'Hanlon offered suggestions that could help merchants grab a bigger piece of the rebate pie.

Her first tip is for retailers to be fully stocked and to promote sales in especially hard-hit areas where consumers will get the checks and spend them in stores.

"For example, retailers with stores in Detroit, where there have been a lot of layoffs, should move inventory to where the economy is more stable and people will spend the money on impulse buys," she said.

O'Hanlon expects many consumers will use the windfall to make "aspirational purchases" such as flatscreen TVs or pricey handbags.

"Retailers should anticipate this and do targeted marketing on these big-ticket items," she said. "This is one way to turn an impulse buyer into a return buyer."

Issue #1 - America's Money: All this week at 12 pm ET, CNN explains how the weakening economy affects you. Full coverage.  To top of page

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