WASHINGTON – Is it too soon to say the “retail apocalypse” is over?
But after the best Christmas shopping season for brick-and-mortar stores since the Great Recession, the industry is looking forward with optimism to 2018 – especially with the Republican tax cut taking effect in February.
In fact, there is arguably no policy goal for which retailers fought harder in recent years than a tax cut for corporations.
This year was a tough year, indeed, for brick-and-mortar retailing, with 50 chains filing for bankruptcy, according to S&P Global Market Intelligence. While some of them were small companies, some biggies were hurt too – from Payless Shoe Source to Toys R Us. Sears, the Gap and Gymboree also closed hundreds of store locations. There were some 7,000 announced store closures this year, according to Fung Global Retail & Technology, which exceeds the 2008 peak of 6,200.
It wasn’t just that Amazon seemed to be taking over the world. The big retail chains were also overloaded with debt, following a series of leveraged buyouts led by private-equity firms.
But retailers are in line to be big winners as a result of the tax cut. It’s a win on multiple fronts. Retailers pay some of the highest tax rates because many generate all, or at least an overwhelming majority, of their income in the U.S.
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Chains and consumer brands also expect the tax bill to boost demand for their goods and services. Many of those companies rely on middle- and low-income shoppers for the bulk of their sales, and changes to individual taxes – such as doubling the standard deduction – will increase discretionary income.
Trade associations and other bodies representing foodservice and other retailers were jubilant when Congress passed the Tax Cuts and Jobs Act.
“This bill addresses the needs of small business and will help restaurants remain strong economic engines and job creators,” said Cicely Simpson, executive vice president for public affairs at the National Restaurant Association.
Retailers say the tax cut on middle-income consumers will free up more money to spend at retail businesses.
The tax cut offers full and immediate deductions on capital expenditures that will allow at least one retailer to be tax-free for the next two years. Aaron’s Inc., which leases televisions and refrigerators to consumers at more than 1,700 stores, will be able to use deductions on buying inventory, which are considered capital investments, to wipe out its tax bill in 2018 and 2019, according to Stifel Nicolaus & Co.
According to a Dec. 4 report from Wolfe Research, the biggest specialty apparel winner under the Senate’s tax plan would be Gap, whose corporate tax rate would drop from 39.6 percent in 2016 to 23.5 percent. Other big winners would include Nordstrom, Restoration Hardware, Dick’s Sporting Goods, Williams-Sonoma and Ulta, which are expected to see their rate drop from the high 30s to between 22.3 percent and 24.2 percent.
Pamela Bailey, president and CEO of the Grocery Manufacturers Association called the act “the most significant piece of tax reform legislation in 30 years.”
“It will help spur job creation within the grocery manufacturing industry and provide tax relief for working families. The food, beverage and consumer products industry has long urged action to fix our broken tax system, which must work in favor of both consumers and manufacturers,” she said in a statement.