Retailers Hope Gift Cards Pay Off Over Holidays

6:35 AM, Nov 13, 2009   |    comments
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Robyn Davis Sekula of New Albany, Ind., gives gift cards to friends, family and clients every year, and this year will be no different. Many people on her gift list live far away, and gift cards are easy to ship. But the main reason she gives gift cards is that she loves receiving them and believes others - especially her "mom friends" - do, too.


"For me, a gift card is a license to shop with somebody else's money," says Sekula, a 38-year-old marketing consultant. "It's a wonderful excuse for me as a mom of three little kids to go into a store and shop and do all the things I don't do when my kids are with me."

 

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With the holidays approaching, retailers hope gift cards will provide one of the few sparks in a shopping season that's otherwise likely to be lackluster. Gift cards remain the most-requested item on consumers' gift lists, according to the National Retail Federation, making them attractive to value-conscious shoppers who don't want to waste money on unwanted presents.


Lower inventories also could lift gift card sales this year, says Ralph Rolen, general manager of Stored Value Solutions, a company that processes gift cards for retailers. Last year, retailers were forced to slash prices to move items out of stores. That hurt gift cards, he says: "If you have a choice between buying something at 70% off or a gift card, you're more likely to give something at 70% off." This year, retailers have reduced inventories, making such deep discounts unnecessary, Rolen says. That means shoppers will be more likely to give gift cards that allow the recipients to pick out what they want, he says.


But gift cards still have an image problem to overcome. Card sales fell nearly 6% to $24.9 billion during last year's holiday season, according to the NRF, the first decline since the trade group started tracking gift card sales in 2002. In addition to an overall drop in consumer spending, demand for gift cards was hurt by mounting annoyance over restrictions and fees and a string of well-publicized retail bankruptcies that rendered some cards worthless.


Scott Palmer, 39, of Baltimore, says the cloudy outlook for the retail sector is one reason he won't give gift cards this year.


"You see something like Circuit City go out of business - one month they're fine, and the next month they're not honoring their gift cards," says Palmer, who works in research and development for a software company. "You don't want to give somebody a gift and not have them be able to use it."


Giving a gift card for a retailer that may not survive the downturn is a legitimate concern, says Dave Sievers, principal at Archstone Consulting, a management consultant. But most major retailers "that are going to go out of business have gone out of business." The remaining national, brand-name retailers will likely survive and fulfill their obligations to gift card holders, Sievers says.


Even consumers who remain enthusiastic about gift cards are spending less. Archstone Consulting estimates that the average value of gift cards will drop 11.5% this year, primarily because consumers have less to spend.

Retailers and card issuers hope to offset that by selling more cards. What they're doing to drum up business:

•Fewer restrictions. Nearly 13% of shoppers don't give gift cards because they're concerned about fees and expiration dates, says a recent NRF survey. Outrage became so strong that the credit card reform bill enacted this year included a provision prohibiting cards from expiring within five years and restricting inactivity fees. That takes effect next year. In September, though, American Express announced it was eliminating monthly fees on its gift cards. Previously, AmEx extracted up to $2 a month from gift cards a year after they were issued. Such inactivity fees can wipe out the card's value and are common for credit-card-branded cards that can be used anywhere. Most retailers' cards carry no fees or expiration dates.

•Personalized gift cards. LeAnna Kruckeberg, 23, an insurance agent in Iowa City, doesn't give gift cards to her family and friends, because she likes the "thrill of the chase to find that perfect gift."

"I can run into the Best Buy and get a couple of gift cards for my little brothers because they're Best Buy fanatics, but getting that CD I know they want vs. the gift card is more personal," she says.

To battle the idea that gift cards are about as intimate as a check, retailers have devised increasingly creative ways to show recipients that their gift card wasn't an afterthought. Best Buy offers a "pitch in" card that friends and family can donate to. Gift cards that let buyers upload a photo to be put on them are becoming increasingly common.

Teri Llach, vice president of Blackhawk Network, a company that distributes gift cards sold in groceries and drugstores, says her daughter's soccer team bought its coach a Visa gift card that featured a photo of the team. "She gets to whip that out and buy something, and there's her team," Llach says.

•Incentives. Some retailers are trying to juice gift card sales by giving buyers a gift or discount with a card purchase. J.C. Penney, for example, is giving customers who buy a gift card for $25 or more discounts on seasonal items, such as a ceramic mug set. Others are using gift cards as rewards. Through Nov. 26, Toys R Us is offering a $10 gift card for purchases of $75 or more. Target is giving $10 gift cards to customers who spend more than $100 before noon on the day after Thanksgiving.

Many retailers view gift cards as a way to reward loyal customers, just as airlines use frequent-flier miles to build loyalty, Rolen says. "You can't use American miles on Delta or vice versa. They're rewarding you for your behavior with them."

Llach predicts retailers will unveil more rewards and incentives in upcoming weeks: "This is going to be a good year to be a purchaser of gift cards."

These incentives won't persuade Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards. Blayney says she's given gift cards to her nieces and nephews, mainly because they asked for them. For many givers, she says, gift cards provide a way to bridge the generational divide between what adults think kids want and what kids really want. Nonetheless, this year she's giving the young people on her list cash.

"Maybe this is a bit Grinchy when talking about a Christmas gift, but if you get $50, you have the opportunity to spend some, give some to charity or save some," Blayney says. Children need to learn "that there are multiple competing uses for money. A gift card teaches them none of that."

By Sandra Block, USA TODAY

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