markets-hub.com

Thanks to the federal government’s $168 billion economic stimulus package, more than 130 million U.S. households will be wealthier by the end of June. The question is, what will consumers do with their new-found cash?

According to a recent Cowen & Co. survey of more than 1,000 people, specialty retailers banking their second-quarter outlooks on inflows from rebate funds may be out of luck. “We believe expectations for tax rebates to stimulate specialty retailers spending are overstated,” analyst Lauren Cooks Levitan said in a note to clients. Levitan said the study’s results suggest that rebate funds will be used primarily to pay bills or purchase essential items, having only a limited effect on specialty retailers as compared to mass merchants.

The average respondent intends to spend just 15.4% of a refund on non-essential items, according to the survey, and 65% of respondents do not intend to buy any non-essential items at all with a refund.

Another key takeaway from the survey was that discount stores are the most likely destination of consumer’s rebate funds, following by big-box superstores. That’s great news for the likes of Wal-Mart, which has at least one Wall Street analyst speculating that the company’s second-quarter earnings guidance of 78 cents to 81 cents a share could prove conservative given that it doesn’t take into account rebate spending. That could be even better news if wal-Mart has plans to provide additional incentives to shoppers spending their tax rebate in the store, the study suggested, because 45% of respondents indicated they would be very likely or likely to shop at retailers doing just that.

Consumers’ overall plans for the tax rebate dollars were also in line with their answers regarding recent shopping patterns, which highlighted that 39% of consumers surveyed said they are shopping less at full-price retailers and more at discount stores than they did one year ago. Going even further, 54% of respondents said they are making fewer purchases at full price and buying more items on sale - even 41% of higher income households ($100,000+) indicated they are making fewer full price purchases.

“While we are encouraged by progress made by many specialty retailers in lowering inventories and expenses to provide some downside protection against weak sales, we believe the current expectations embed improved overall retail and consumer trends in the second half of 2008, partially boosted by the anticipated benefit of tax rebates, which our survey indicates could prove overly optimistic,” Levitan said.