From Home Furnishing Business
Streamlined Tax Refund Season Emerging as Major Advertising and Sales Opportunity
Many home furnishings advertising and sales events throughout the year focus either on a national holiday or “end of season” promotion. National holidays presumably give consumers an extra day to get out and shop and “end of season” events help retailers clear inventory off floors to make room for new merchandise. Only recently taking form across all consumer products is a sales event that focuses on when consumers actually have extra money to spend – Tax Refund season.
Thanks to the proliferation of efiling and the increased sophistication of IRS processing, last year $318 billion in tax refund dollars poured into direct deposit accounts and home mailboxes of 111 million tax filers earlier than ever before (Figure 1).
The earliest the IRS begins direct deposits or mails returns is around February 1. About 45 percent of last year’s tax refunds arrived in the month of February and an additional 22 percent were received in March. In the last two months of the first quarter of the year, consumers had $202 billion dollars of extra cash in their bank accounts. For the furniture and home furnishings industry, the question becomes, are retailers doing the right kind of advertising to steer these tax refund dollars toward their stores and products?
The growth of efiling
Efiling has revolutionized the way people get refunds. In fact, mailing in tax forms is rapidly becoming a thing of the past. As shown in Table A, the percentage of tax filers efiling tax returns has grown from 30.7 percent in 2001 to 91.0% in 2016 - a climb of 60.3 percentage points. With the IRS currently issuing refunds within 9 to 14 days after receipt of a tax file, filers can receive direct deposits as early as the first week of February.
2016 Filing Season Statistics
In the 2016 tax filing season, over 111 million tax filers received refunds out of the 152 million tax returns processed. At 82.7 percent in 2016, the vast majority of people filing in February are receiving refunds. Table B shows that 41.9 percent of the year’s filers or 46.5 million returns received refunds in February. Another 21.8 percent of filers received refunds in March and 16.2 percent in April with the remaining 20 percent getting money between May and December.
Almost half of the money paid out in tax refunds (44.7 percent) for the entire year occurred in February – $142 billion out of $318 billion (Table C). March accounted for 19.1 percent and April for 13.2 percent of total refund dollars. Less than one-quarter of refund dollars were paid in months May through December.
With an average refund of $2,860 during 2016, those filing early in February received refunds 6.8 percent higher at an average of $3,053. Both March and April were less – averaging $2,506 and $2,327. Surprisingly, those waiting to file later (between May and December), received an average of $3,271 per refund (Table D).
How do Consumers plan to spend refunds?
In a study last year, GOBankingRates.com conducted a Google consumer survey asking consumers if they received a refund and if so, how they plan to spend it. Based on the survey, 70 percent of consumers expected to receive a refund. Table E shows how those 70 percent plan to spend their money. The majority plan to either pay off debts or put the refund into savings. Almost 13 percent want to use their extra money for a vacation and roughly 13 percent plan to either make a major purchase such as a car or home or splurge on smaller purchases.
Younger consumers are more likely to both receive refunds (Table F) and also spend those refunds on consumer purchases as opposed to paying off debt or sticking in a savings account (Table G). For the key target groups for the Furniture Industry, 81.0 percent of older Millennials (25 to 34) and 73.3 percent of 35 to 44 year olds expect to receive a refund.
While the 13 percent of tax filers receiving a refund expect to spend this money on major or splurge purchases, this number goes up significantly to 17.1 percent for younger Millennials and down to 7 percent or less for consumers ages 55 and over (Table G).
How do the 13 percent translate into possible dollars for the furniture industry? Combining IRS statistics with the survey, Table H shows that in 2016, $18.26 billion was available for use on major purchases and splurge spending in February alone – 44.7 percent of the $40.82 billion for the year. An additional $22.6 billion is spread out over the following months – 19.1 percent in March and 13.2 percent in April.
Based on the $26 billion plus dollars up for grabs each first quarter, is the Home Furnishings Industry advertising correctly and planning the best sales events to attract the dollars from tax refunds? With enticing deals and strategic advertising, can more dollars be lured away from vacation spending or other purchases and into home furnishings purchases? Now that efiling has streamlined income tax filing into an easy and fast turnaround for over 90 percent of consumers, a definitive purchasing season has emerged and advertisers should take notice.