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Black Friday boom? Retail sales boosted by critically timed carry-back legislation

Black Friday boom? Retail sales boosted by critically timed carry-back legislation

Department stores bracing for the biggest shopping day of the year are giving thanks to Congress.

After enduring the worst holiday sales season in 40 years, retailers are hoping for a good “Black Friday,” the day after Thanksgiving when retailers generally offer huge discounts to drive people into their stores.

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This year’s sales have been boosted by legislation allowing companies to carry-back net operating losses to the past five tax years.

“We think it will have a benefit,” said Craig Sherman, vice president of government affairs for the National Retail Federation (NRF), which lobbied vigorously for the measure.

Sherman said the provision will help retailers by providing money to pay for adding inventory or to hire more workers to meet the masses of December shoppers. Without the change in tax law, firms could only carry back losses to the last two tax years. Given the recession, that didn’t help many retailers who had seen minimal or no profits over the past two years.

Even if the money isn’t yet technically available, Sherman said retailers are using the incoming funds as collateral to get loans from their banks.

“If a company can’t hire workers or buy inventory, they might not have what they need for the season,” Sherman said.

The timing of the legislation was critical. Sales in November and December have historically made up nearly 20 percent of the industry’s annual sales, and in some cases can account for as much as half of all annual sales, according to the NRF.

Retailers initially had pressed for the tax legislation to be included in the $787 billion stimulus, but that bill only included a five-year carry-back for small businesses.

Since then, retailers have continued to lobby for the change, flying executives from a dozen companies to Washington in the fall for a final push.

Estimates suggest the five-year carry-back could have an impact of $10.4 billion, though not all of those funds would go to retailers.
This year’s holiday sales will be monitored closely in Washington, where Democrats in the White House and Congress are looking for any signs of consumer confidence and a recovering economy.

In a positive sign on Wednesday, consumer spending ticked upward in October by 0.7 percent, according to statistics released by the Commerce Department. Spending dropped by 0.6 percent in September.

“The strength of the holiday sales is not clear yet, but strong growth in government benefits and a large drop in personal taxes so far this year have enabled households to increase spending and also improve their financial position by paying down debt,” said Commerce Under Secretary Rebecca Blank.

Next fall’s elections may be determined by whether voters have more confidence in Democrats or Republicans steering the economy through the worst recession since the Great Depression.

Retailers are hoping for a better Christmas season than last year. Consumer confidence dried up last fall as home values plummeted, banks failed and the government set up a $700 billion bailout program to halt Wall Street’s collapse.

Overall retail sales during the holiday season declined 3.4 percent, and industry sales for the year fell 3 percent.

Retailers this year still expect sales to fall, though they are hopeful the decline will be a more manageable 1 percent. The NRF projects $437.6 billion in holiday sales in 2009.

Black Friday is expected to be a very good day. NRF predicts 134 million shoppers will be out over the weekend compared to 128 million over last year’s weekend.

Some retailers are offering sales on more than 400 items, according to Kathy Grannis, a spokeswoman for the group. Laptop computers and flat screen televisions are again expected to be popular items.