Hopes hinging on tax holiday

The 5% levy might be lifted, but retailers worry that won't be enough to lure cautious shoppers

The CambridgeSide Galleria is not bashful about informing shoppers about the sales tax holiday this weekend. (Essdras M Suarez/Globe Staff)

This weekend may be tax-free for Massachusetts shoppers, but it will not be stress-free for merchants.

Retailers, worried that the slowing economy could stop shoppers from taking advantage of the sales tax holiday on Saturday and Sunday, are slashing prices, offering extra discounts, and extending hours in hopes consumers will come out in droves to buy items priced $2,500 or lower because the 5-percent sales tax will be suspended.

"Consumer spending has slowed in recent months," said Bill Rennie, vice president of the Massachusetts Retailer Association. "Retailers really need this sales tax holiday."

Now in its fifth year, the two-day holiday, which offers consumers a tax break on many items including furniture and computers, traditionally has brought in lots of back-to-school shoppers and those looking to make big-ticket purchases. In each of the last four years, the holiday brought $500 million in sales.

But this year, retailers fear consumers will keep their money in their pockets, despite warm weather forecasts that they hope will spur shoppers to head to the stores. Even though millions of tax rebate checks went out this summer, consumer spending has remained dismal. And retailers are particularly worried about this back-to-school season, typically the second-largest shopping period after Christmas.

There's certainly cause for concern. Back-to-school spending nationwide, including by college students, is projected to grow about 2.5 percent to $51.4 billion compared with last year, the lowest increase since at least 2003, according to the National Retail Federation, a Washington, D.C., trade group. And according to a report released by the organization last month, college back-to-school spending will drop to an average of $669.61 in the Northeast, compared with $760.05 last year.

The tumbling housing market and high unemployment coupled with rising gas prices and food costs have caused many to tighten their purse strings.

The economic forecast for shoppers is bleak, Rennie said, but "retailers are cautiously optimistic that this weekend will be a success."

To draw in customers, the nine Apple stores in Massachusetts will stay open 24 hours. At CambridgeSide Galleria, signs promote extended stores hours for half a dozen electronics and department stores in the mall. And Sears is offering in-store discounts and plans to plaster a big white-and-blue banner above its second-floor entrance today.

Sears manager Mohammed Azad said the retailer had to advertise its sales more aggressively this year. In addition to the banner, the retailer set up tables around the store with flyers promoting discounts of 20 percent off kitchen appliances advertised on TV and in newspapers.

"There's a lot of competition," he said. "We have to give the customers extra deals to get them here."

For its part, local chain Bernie & Phyl's Furniture rolled out television commercials and radio ads promoting its weekend sale: It's offering an extra 5 percent off. The retailer also plans to open early and stay open until all customers are served.

"Furniture stores became a popular destination spot during tax-free weekend," said spokeswoman Amy Blumenthal. "We want to sweeten the deal for customers during this tough economic time."

Even car dealerships are taking advantage of the holiday, even though vehicles are exempt. Boch Honda in Norwood is offering 10 percent off accessories and installation of accessories.

Still, some retail experts argue the warm weather and hot sales will not be enough to get consumers to open their wallets. Retail analyst Michael Tesler said the tax-free holiday does little to spur business, and instead "creates an extra headache for retailers because they need a bigger staff to help customers."

"It's not creating extra sales," said Tesler, president of Retail Concepts, a consulting firm in Norwell. "It's just condensing sales that would have been spread out throughout the month.

But for some customers, the tax-free weekend gives them that extra nudge they need to make big purchases.

Gareth McKinley, of Acton, has been eyeing a 50-inch Panasonic plasma TV for six months, slowly watching the price go down until it hit $2,500. He planned to make the one-hour drive to New Hampshire to avoid paying sales tax. Now, he plans to wait until Saturday.

"This is exactly what I needed to push me over the edge."

Angel Jennings can be reached at ajennings@globe.com.