By Andria Cheng
With few days remaining until the Christmas holiday, retailers are hoping that last-minute shoppers either out of ideas or things to buy will turn to gift cards.
Yet gift-card sales are expected to be flat or down this holiday after posting a decline last year. Retailers now are betting that the new twists and looks they give to gift cards can compel purchases.
While they aren’t counted as sales until after redeemed, gift cards yield nice dividends for retailers because shoppers tend to spend more than the value of their gift cards and they are a good way to drive traffic back to stores, analysts say.
“Our customers historically spend over two times the value of a gift card when they come back to redeem,” said Best Buy Co.’s (BBY) Chief Executive Brian Dunn on a conference call on Tuesday.
He said gift-card sales at the No. 1 U.S. electronics chain were up about 40% in November, including about doubling on the Friday and Saturday after Thanksgiving. That’s “a fact that has contributed meaningfully to our post-Christmas business in recent years.”
Concerns about the validity of cards after bankruptcies of retailers such as Sharper Image and Linens ‘n Things have lingered, while attractive discounts and promotions have made it more alluring to buy an actual gift with more perceived value than giving a gift card instead, analysts say. The economic downturn and reduced consumer spending across the board also shrank gift-card sales.
Store gift-card spending this year is expected to fall by 7%, its second straight year of decline, according to research firm TowerGroup. With shoppers being more budget-conscious and buying more practical items, that in turn will drive up general-purchase cards (which allow consumers to redeem cards at different stores) by 3%, TowerGroup said. Total gift-card spending is expected to decline 4.4% to $87 billion this year.
About 49% of respondents in an America’s Research Group and UBS survey conducted in mid-December said they bought a gift card this holiday, compared with 53% a year earlier, as shoppers are increasingly chasing promotional deals on gift items.
To drive demand, Best Buy’s new gift-card choices this holiday season included one in the shape of an actual toy car and another card that lights up. Its new “Pitch In” card, unveiled in October, allows groups of people to contribute to a card that can be used for larger-ticket purchases. “Customers love that sort of frazzle-dazzle that goes on,” said Anne Platt, Best Buy’s senior director of marketing, in an interview.
Amazon.com Inc. (AMZN) is offering more than 50 new greeting-card styles that can be personalized and sent for free this holiday season.
Home Depot Inc.’s (HD) gift-card roster included a 3D interactive card, which, when flashed before a Webcam on a computer, will reveal a crate suggesting products and projects for the value of the card. This is also the first time shoppers can use the largest home-improvement retailer’s gift cards to pay for an online purchase.
“You can bring more robust opportunities” to market, said David Stone of CashStar, which provides digital gift-card services to retailers from Home Depot to Container Store.
To engage more customers, retailers such as CVS Caremark Corp. (CVS) have been adding incentives such as giving an extra gift card to card buyers; the campaign is called “GoGo,” short for “give one, get one,” according to Stone.
To get consumers in the stores, teen retailer Abercrombie & Fitch Co. (ANF) is giving a $25 gift card, which must be used by the end of January, to shoppers who spend at least $100 at its namesake chain.
No. 1 U.S. specialty-clothing chain Gap Inc. (GPS) is looking to make gift cards more compelling, with initiatives such as the “give 110%” promotion at its Banana Republic chain. The store takes 10% off a purchase price when a shoppers uses a gift card from Dec. 26 through the end of January. That is when most retailers close books on their fourth quarter, the industry’s biggest selling season.
Gift cards also are becoming more like awards themselves, superseding prizes like vacation giveaways, in retailer contests and events. Stores such as Lane Bryant undertake these efforts to engage shoppers and attract new customers who are interested in their brands, instead of people who might only be interested in a car or a free vacation, said Eric Holmen, president of SmartReply, a digital mobile-marketing firm. SmartReply’s clients include Gap and Sports Authority, as well as Neiman Marcus and Kohl’s Corp. (KSS)
Companies “are looking for excuses to engage customers,” he commented. “The gift card seems to become currency. You are able to prospect through new customers.”