February 16, 2021
It’s that time of the year again when Americans collect receipts, pay stubs and other financial information in preparation for tax season. According to IRS data, about three in four Americans typically receive a tax refund that averages around $3,000 each. Though tax refunds are, in essence, a return of a portion of a taxpayer’s own money, many Americans see it as free cash – and spend it accordingly.
As a result, while companies in the tax preparation business like H&R Block, Inc. (Tii:HRB) and Intuit Inc. (Tii:INTU), the parent of TurboTax and QuickBooks, certainly make the lion’s share of their revenues this time of year, tax season is also big business for retailers. The National Retail Federation’s 2020 Tax Return Study illustrated this point. While most survey participants said they would pay down debt or put into savings, nearly a third plan to spend their money on either a major purchase, splurge purchase or vacation.
Let's take a look at these three spending areas and the brands that may experience a tax season bump as a result of this consumer trend:
According to the IRS, there are three different kinds of major purchases: A motor vehicle, an aircraft, boat, or home (including a substantial addition to or major renovation of a home under certain conditions). This could well provide a boost for real estate-related brands like RE/MAX Holdings Inc. (Tii:RMAX), Zillow Group, Inc. (Tii:Z), or Redfin Corp. (Tii:RDFN). Those that take the home improvement route will surely visit such retailers as The Home Depot Inc. (Tii:HD), Floor and Decor Holdings, Inc. (Tii:FND) and Lowe’s Companies (Tii:LOW) for their project materials.
Automotive companies often create and market tax return-related incentives to entice consumers into their showrooms – which may have contributed to the F-Series by Ford Motor Co. (Tii:F) coming in as the top-selling vehicle in the U.S. last year with 787,422 units sold, according to Car & Driver. However, one of the fastest-growing segments in the auto industry is electric vehicles. Illustrating this, Tesla Inc. (Tii:TSLA), which delivered 499,550 vehicles worldwide in 2020, is building new manufacturing facilities in Austin, Texas and Brandenburg, Germany, to increase production.
After our experiences with 2020, what better way to embrace the “You Only Live Once” philosophy than by treating yourself to a well-deserved gift or experience? This could well become a trend in post-pandemic America. According to a recent survey by LendingTree Inc. (Tii:TREE), 82% of Americans planning to get vaccinated will splurge on something to celebrate afterward. Whether this takes the form of jewelry from Tiffany & Co. (Tii:TIF), self-care products from e.l.f. Beauty Inc. (Tii:ELF), outdoor activity gear from Wolverine World Wide, Inc. (Tii:WWW), or a top-shelf bottle of whiskey courtesy of Diageo plc (Tii:DEO), there will be no shortage of American consumers ready to carpe diem.
While it remains uncertain whether the bulk of Americans will immediately return to the skies post-pandemic, it’s quite likely travel and tourism will receive an uptick as the coronavirus vaccines become more widely available. As a result, consumers who were pent-up in their homes for the last 11 months or so may well take their tax refunds and use them to book some much-needed vacation travel. This news is undoubtedly well-received for the beleaguered travel and leisure industry – which had its worst year ever in 2020. American Airlines Group (Tii:AAL), United Airlines (Tii:UAL), and Delta Air Lines, Inc. (Tii:DAL) and other major carriers along with lodging providers such as Choice Hotels International Inc. (Tii:CHH), Wyndham Hotels & Resorts Inc. (Tii:WH) and Airbnb Inc. (Tii:ABNB) may land a piece of the tax return pie as well.
Suppose 2021 does in fact mark the beginning of a return to normalcy for consumer behavior. In that case, it’s not a stretch to assume that at least some of these brands will experience an increase in sales as Americans look to forget the woes of the last year in favor of forging newer, happier memories.