Stores expect 'dry' spell as tax credit ends

RETAILING REPORTER

For home improvement retailers struggling in a downturn, the tax credit program has been a boon, generating an estimated $500-million in sales so far this year.

But the federal program ends by Feb. 1, and nobody is counting on Ottawa keeping it longer. What then?

"If they could get it extended for three months, it would be great," said Michael McLarney, publisher of industry publication Hardlines. "It would get over the hump, which is always the worst quarter for the industry.... The first quarter will be dry."

Still, the retailers, hit hard in the past year by the worst recession in decades, are betting that a stronger economy will help make up the tax-credit sales shortfall in 2010.

"Next year, we think consumer confidence will be better - not by much, but better," Claude Guevin, chief financial officer of the Rona Inc. chain, said in an interview.

Rona alone has generated $60-million in sales that it ties to the tax program until the end of September - a sum that could rise to $100-million by year's end. The entire industry could have rung up $500-million of sales so far from the program, based on Rona's figure, Mr. McLarney calculated.

Under the program, announced in last January's budget, Canadians can receive up to $1,350 in tax relief for projects that are worth between $1,000 and $10,000 and take place between last Jan. 27 and Feb. 1, 2010.

Rona has tracked its tax-credit sales through its own promotion, which provides up to a 10-per-cent discount for a purchase of between $1,000 and $10,000. Home Depot Canada, the country's largest home improvement chain, has offered a similar incentive program, although not continuously.

Home Depot HD-N would not disclose its sales linked to the federal tax benefits, but Peg Hunter, vice-president of marketing, said, "I do believe people are taking advantage of it."

More than 25,000 customers have participated in Home Depot's top-up program, and 250,000 consumers have visited the retailer's website for its tax credit information, she said.

At Rona, about 13,000 customers signed up for its promotion, Mr. Guevin said.

Home Depot executives appeared recently before a parliamentary committee to ask that the Home Renovation Tax Credit be extended beyond the Feb. 1 expiry. "We're not counting on it," Ms. Hunter said yesterday.

Canada Revenue Agency said its website on the program has received 2 million hits, which it considers a strong response, spokeswoman Caitlin Workman said. Its 1-800 telephone line has got close to 30,000 inquiries about the credits, asking such questions as what is eligible and how the credits are calculated. "Looking at the nature of these questions, it does go to show that Canadians are definitely considering the tax credit when they look to do work on their homes."

Still, even with the tax credits, Rona said its same-store sales slipped 5. 3 per cent in the third quarter at outlets open a year or more. More than 80 per cent of the decline was because of lower sales of forest products, building materials and seasonal items, it said.

"In the last few months, we have felt the first signs of a recovery," chief executive officer Robert Dutton said on a conference call, pointing to a more optimistic outlook.

Rona (RON-T) Close: $15.75, down 4¢

Home Depot (HD-N) Close: $26.82 (U.S.), up 1¢

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Rona Inc.

Q3...............................2009....................2008

Profit...........$49.15-million.....$52.50-million

EPS......................38 cents...............45 cents

Revenue........$1.32-billion........$1.38-billion

Source: company report