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Gift Cards Keep Giving

Feb 1, 2007

Gift cards reached an estimated $24.8 billion, or about four percent of all 2006 holiday spending, according to most estimates. Their sales, however, didn't add the traditional seasonal holiday business. Because they are not counted until they are redeemed, they are helping many retailers get off to a healthy 2007.

While experts disagree on just how many consumers bought gift cards during the most recent holiday season, all agree that the number, and the total value, continued to rise. Both gift givers and recipients have embraced gift cards, making them a preferred item on gift lists and wish lists.

The fourth annual holiday gift card survey sponsored by the National Retail Federation (NRF) and conducted by BIGresearch projected that the average consumer spent nearly $117 on gift cards, compared with an average of $88 a year ago.

A Deloitte & Touche study projected that the average consumer bought 4.6 holiday gift cards, with an average of 3.9 a year ago. More than two-thirds (79.7 percent) of consumers polled by BIGresearch said they expected to buy at least one gift card, and more than half said they wanted to receive a gift card.

Some $12 billion worth of gift cards, about half the dollar amount bought, will go unused into January, if this season follows last year's trend, according to Philip Rist, vice president of BIGresearch. Getting consumers to cash gift cards is a challenge for retailers, he says.

In order to hurry up redemption, some big retail chains ran ads encouraging consumers to cash them in, and in some cases, offering incentives to help speed the process. Home Depot, for example, ran a newspaper ad promising to donate five percent of the value of gift cards redeemed by January 28 to U.S. troops.

Any post-holiday revenue from gift card redemption could spell good news for retailers who have had a less than spectacular holiday selling season. Some stores also see gift card redemption as a way to lure customers into their stores for impulse buying, says retail analyst Kurt Barnard, president of the Retail Forecasting Group.

"Once the customer comes to the store, there is the theory that they see things beyond what their gift cards allow and so they spend more," Barnard says. A good number of after Christmas gift card redemptions are for full price merchandise worth more than the value of the card, he also notes.

But why do some gift cards go unused? Other than the possibility that people forget to use them, nobody really knows. "Somebody paid good money for it and it isn't being used. That is a shame, but it happens," Barnard says.

Retailers lifted the limits and lowered the restrictions on gift cards, according to the third annual gift card study, conducted among the NRF's top 25 retailers and the four largest credit card companies. Best Buy raised its gift card value limit to a whopping $9,999. Some stocking stuffer! JC Penney raised its maximum from $250 to $500.

Fees and expiration dates are the exception, rather than the rule with store gift cards now, according to Three of the major credit card companies, Discover, MasterCard and Visa, continue to charge fees for cards not used within a certain period of time. American Express gift cards have no expiration date.

Currently 13 states have laws prohibiting expiration dates, but they apply only to local retailers. However, the study says some national chains have also done away with expiration dates.

With gift cards' rising popularity and value has come increased fraud. Thieves and counterfeiters have climbed onto the gift card bandwagon. Retailers are just beginning to quantify the amount of thievery associated with gift cards and take steps to thwart it. The first line of defense is to urge consumers to buy cards only from reputable sources, not online auctions, and also to keep the receipt.

Topic: Business Strategies

Related Articles: gift cards  marketing 

Article ID: 49

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