Big Drop in Tax Refunds Means Trouble for Some Retailers

The IRS has handed out 70 percent fewer tax refund dollars so far this year, leaving department stores to suffer and off-price stores to gain.

People are seeing fewer and smaller tax refunds so far this year compared to last year, and it’s expected to affect the bottom lines of some big retailers.

Telsey Advisory Group said the Internal Revenue Service had issued only $28.9 billion in refund dollars as of Feb. 10, compared to $94 billion by the same time last year — a drop of close to 70 percent.

While the brokerage firm noted that returns received and returns processed are both down by roughly 17 percent, it said the number of people actually receiving a refund is down by more than half and of those seeing some tax dollars paid back, the average amount has also dropped to a little more than $2,000 from more than $3,200 last year.

“We would expect companies with a core consumer base in the lower-to-middle income range to be most impacted by the significant decline in dollars refunded by the IRS this year versus last year,” Telsey said, adding that this could benefit off-price retailers like Burlington Stores, Ross and TJ Maxx.

On the other hand, Telsey pointed to J.C. Penney Co. Inc., Macy’s Inc. and Kohl’s Corp. as likely to “bear the brunt of the negative impact as discretionary dollars shrink and are even more so allocated to the off-price channel.”

Wal-Mart Stores Inc. has also previously blamed tax refund delays for a negative impact on sales.

As for big apparel players like VF Corp., which owns a range of brands including Vans, The North Face and Lee, and PVH Corp., which owns Calvin Klein and Tommy Hilfiger, the firm said it still believes shoppers are “willing to pay a premium for quality brands” and that companies with global diversification are likely to fare better.

Although tax refunds are not expected to have an outsized impact on specialty retailers and luxury brands, given the general income bracket of their shoppers, Telsey said those markets will likely be affected by possible changes in tax policy and the overall performance of the equity and housing markets.

President Trump has repeatedly promised to overhaul the U.S. tax code and the Federal Reserve is expected to raise interest rates this year, possibly in three small installments.

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