Thursday, Sep 27, 2012

Credit is due
Home improvement chains brace for end of tax break

A last-minute rush to buy home renovation supplies before a special Canadian tax rebate expires at the end of the month may not do very much to bolster results of the country's big home improvement retailers.

Big chains Rona Inc., Home Depot Inc., Lowe's Companies and Canadian Tire Corp. have claimed an uptick in business over the past year as homeowners spruced up their homes.

But the boost has not done much more than cushion the impact of the economic downturn on sales, analysts say.

They believe that the tax breaks - due to expire on Jan. 31 - have merely pushed ahead timetables for home projects already planned, setting up the industry for a return to the slow times once the incentive ends.

"In the grand scheme of things, it is never really that much of a benefit," says Brian Yarbrough, a retail analyst at Edward Jones in St. Louis, Missouri. "It could help the same-store sales for that month, but the following month they will fall off again. When you look over the whole three months for that quarter it's probably not going to make that much of a difference."

Same-store sales, which are sales in stores that have been open for at least a year, are followed closely because the number strips out the impact of expansion.

The Home Renovation Tax Credit gives Canadians a tax rebate of up to C$1,350 to renovate their houses or vacation homes.The stimulus program was introduced by Prime Minister Stephen Harper's Conservative government in its federal budget last March as a way to jump-start the struggling economy.

Bill Chisholm, a retail analyst at MacDougall, MacDougall and MacTier, says the additional home improvement spending "would not be enough to tip the scales" for the results of retailers, which have suffered as the economy weakened and consumer confidence shrank.


Still, the retailers claim they have registered increased traffic.

"We are seeing it [a flurry of activity] right now. For us that program has been very successful," says Claude Bernier, executive vice-president of marketing at Rona.

Rona bought into the program quickly, offering an additional 10% in gift cards for eligible projects. Home Depot's Canadian stores have offered similar incentives.

The program, Bernier notes, has resulted in about 17,000 projects being registered at Rona's 680 stores so far, garnering the Quebec-based company about $130 million in business.

Rona's same-store sales slipped 5.3% in the period which ended in November, as lower sales of high-volume building materials used by the big home builders hurt results.

But it could have been a lot worse, Bernier says, had purchases of renovation items such as paints, drywall and kitchen sinks not helped offset weak demand for the construction supplies.

"The same-store sales were negative all year, but I think if the program had not been there, the size of the percentage would have been a lot bigger than the numbers that have been disclosed," he says.

Lowe's Canada, which currently has 15 stores in Canada, also says the tax break has increased sales.

"I can tell you that we've certainly seen consumer interest in the HRTC," says Maureen Rich, a spokeswoman for the North Carolina-based company. She would not disclose sales numbers, however.

Meanwhile, the rush to take advantage of the credit might be for naught. Retailers and consumer groups have prodded the government to extend the program and there is some faint hope they may get their wish.

The government has said it will stick to the Jan. 31 deadline, but it has held out the prospect of an extension as it enters pre-budget discussions.

"While we've committed to end temporary stimulus spending once Canada's recovery is secure, we're also looking at ways to continue to deliver our stimulus to have a real impact on the economy and welcome the views of all Canadians as we prepare the next federal budget," a Finance Department spokeswoman told Reuters in an e-mail.

Renovation archive

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