September 27, 2007
Gift Cards Continue to Grow
By Tom Ryan
According to a study from Archstone Consulting, sales of holiday gift cards will surge 25 percent to a record $35 billion this year. The gains are expected to be driven by: 1) expanding gift card sales beyond their own stores, i.e., supermarkets and drugstores; 2) more sophisticated software at cash registers to process gift cards; and, 3) a growing cultural acceptance in giving gift cards as presents.
Last
year, holiday gift card sales jumped 55 percent to $28 billion, according to
the National Retail Federation. Gains in 2004 and 2005, when retailers were
initially rolling out programs, were 0.6 percent and 6.4 percent, respectively.
Convenience
– for both the giver and the recipient – is a primary reason behind the ever-increasing
popularity of gift cards, Dave Sievers, a principal at Archstone, told the El Paso Times.
“Retailers are also aggressively merchandising gift cards,” Mr. Sievers said. “People tend to purchase more than the face value of the gift card (when they redeem them), and they create shopper traffic, which retailers love.”
“Gift cards are everywhere,” Shelly Escandon, store manager for Mervyns at
Sunland Park Mall in El Paso, told the paper. “You can get them at restaurants,
food, music.”
Ms. Escandon adds, “It’s not only convenient for you, but convenient
for the person you’re buying the gift for — less returns and exchanges because
of the wrong size.”
The study also found:
- The average U.S. family will spend an estimated $184 on gift cards this
holiday season; - Gift-card fraud has been an issue, but retailers are rolling out better
technology to thwart it; - Roughly 56 percent of all holiday gift cards are redeemed
within the first month of being purchased; - Gift cards issued by banks – which,
unlike many retailer-issued cards, can be redeemed anywhere – are expected
to post the biggest gains this year.
Archstone surveyed 1,000 web users between July 12 to July 18.
Andrew Buss of the Hazleton Group, a unit of Archstone, told the Dow Jones Newswire that to shore up momentum, retailers will have to become more sophisticated in how they market gift cards. For instance, retailers should recognize that men tend to buy gift cards earlier in the season than women. Also, promotional strategies should be reviewed as post-Christmas gift card sales become an increasingly important business.
Discussion Questions: Do you likewise expect big gains in gift card sales this holiday season? How much longer do you think growth will continue? How can retailers further capitalize on increasing consumer acceptance of gift cards?
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Uses for voucher cards are proliferating rapidly. Has anyone received a mail-in rebate from AT&T Wireless lately? It arrives in the form of a preloaded, bank-issued debit card that can be used anywhere. Not only are they counting on customers failing to go to the trouble of mailing in a rebate, but they’re also counting on customers either not using the rebate cards or not using all of the their value. No wonder several states are considering outlawing mail-in rebates. (Some bank-issued, preloaded cards, however, can now be deposited into your bank account for a small fee. Nothing beats liquidity.)
Retailers count on a slightly different dynamic for gift cards. First, they possess the purchase dollars for a valuable period of time before they are reclaimed by a customer (like AmEx Traveler’s Checks). And second, not all gift cards are redeemed or are used for their full value. What a racket.
Self-use voucher cards have yet another dynamic. These would include most of the phone minutes cards, iTunes cards, etc. sold year-round in checkout lanes. While the retailers and their card suppliers do enjoy the benefit of positive cashflow from these transactions, the dollar value of self-use voucher cards tends to be more fully used than typical gift cards or rebate cards.
Gift cards are a sign of the times and will continue to grow and have tremendous upside for many years to come for several reasons including:
1. Ease of purchasing on-line at home or at work in quantities or individually;
2. People are busy. Purchasing more tangible gifts are time consuming;
3. You can’t go wrong with purchasing a gift card–there is lower risk that the recipient will be disappointed.
Gift cards are also good for retail business because they do not get returned. Better yet, this assures that the consumer will come in to the store or shop online and more than likely will exceed in purchases the dollar value on the card.
Every gift sends a message. For some folks, a gift card means freedom to choose, which is much appreciated. For some folks receiving them, gift cards mean, “You didn’t care enough to take the time to find me something special.” For some folks, a gift card that isn’t fully refundable (Pier 1) can generate frustration and then resentment (against the store and/or the giver.) Sooner or later, the negative feelings in the latter 2 groups will create opportunities for smart retailers and caring givers. Or will gift card sales increases just lead to the next step: more folks who just give cash in an envelope?
Sure–gift cards are the new acceptable way of giving money, without the emotional coldness of cash. It also provides a speedy, e-commerce way for givers to be time-efficient as well as thoughtful.
Next up: segments of shoppers beyond newly-weds creating online gift registries in conjunction with gift cards (teens, tweens, singles and matures).
Gift cards are a trend with staying power; they will continue to grow at double-digit rates for the foreseeable future, and then level off at a high plateau. After all, they’re convenient, easy, quick, practical and don’t require wrapping or schlepping. They’re also the perfect solution to an ever more common dilemma: what to give someone who already has everything they could ever want or need! (Indeed, 40% of people say they prefer a gift card to a gift.)
How can retailers further capitalize? They must plan and be ready to execute. That means inventory, pricing, staffing, merchandising, supply chain, customer service, and IT (tie-in with your loyalty program!). Most fundamentally, in my view, is that THEY MUST SUPPORT THE CROSS-CHANNEL SHOPPER. Make it easy, inviting and rewarding to use gift cards online, in the store, from the catalog. Your consumers will reward you with more visits, more spending, higher tickets and more loyalty.
How great is it for a retailer to get his money in advance? Then, when someone cashes it in, they spend, on average 40% above the face value of the card.
Also, keep an eye on the value-added segment with cards doing double duty as DVDs and CDs.
I had the prestigious position (!) of Fundraising Coordinator for my kids’ school for about four years. And I learned a lot about gift cards (more than I really cared to know). These were my key learnings:
1. Many purchasers of gift cards buy them for themselves, because they are like cash, and allow them to stay on budget over a given month. Because they are very convenient, raise money for a good cause, and keep you on budget, they are a big “win” overall for many people.
2. Fundraising organizations can make a lot of money by selling gift cards through schools, sports teams, etc. Some retailers offer up to 15% back (most grocery retailers have much lower rebates, but over time, the money is quite huge).
3. Folks who are purchasing gift cards for themselves become loyal to retailers, because they are committing their shopping for the upcoming month to a particular retailer.
I don’t know the stats on how many gift cards are sold through fundraising vs. directly through the store. I can confirm that the success of this program at our school indicates that this is yet another avenue for gift cards to become a more mainstream alternative to cash, while benefiting the community.
The convenience of giving gift cards makes them ever popular with consumers of all ages. And the increasing choices in cards available will result in increased sales for many years to come.
Someone recently told me that a couple set up a wedding gift registry on the E-vite website, and one of the gifts requested was a gift card from Home Depot. Go figure that one.
I wouldn’t expect to see this trend decline anytime soon, considering our hectic lives are becoming more and more time-starved. From a retailer’s perspective, there’s a tremendous opportunity for those that effectively merchandise gift card holders as well…a 60-70% margin at $3-$5 a pop can generate some easy money, and makes the impersonal gift card a bit more personal–which may ultimately help to prolong Gift Card sales growth.
I also see strong gift card growth in the restaurant industry. Our 2007 Database of Foodservice Technology shows close to 40% of foodservice companies operating 25 or more restaurants have gift card/stored value software implemented. This is up from about 30% in our 2005 version.
I believe gift card sales will be very strong this year and continue to be so for years to come. I further believe savvy retailers will start taking advantage of selling more gift cards that are accepted at multiple retailers. I also see competition for Visa and Mastercard in that space where other coalition type cards can be sold with out their standard service fees. These cards will add more value to both the consumer who buys it and the receiver who will use it. It also will provide an opportunity for retailers to market to those gift card holders to choose them over others in the coalition. Bottom line: the consumer feels like a winner while retailers have the opportunity to increase sales!
I’m with Liz on this one…gift cards have become the socially acceptable way to avoid shopping–without the crassness of cash. Their use will continue to grow as people happily shed the burden of shopping for someone they either don’t know that well or don’t know how to buy for.
One key point on the gift card that differentiates it from an envelope full of $20s is the retailer’s name. The giver is, in effect, saying “I think you are a Home Depot person.” This is a tremendous positioning tool for retailers. When a person gives a Home Depot gift card, they are giving Home Depot as their gift. This allows the retail brand to effectively assume the brand of the gift. Remember “when you only care to send the very best”?
One important promotional tool for gift cards that was not mentioned here is gift card packaging. Retailers across the board are now offering bags, boxes, tins, and other innovative packages along with gift cards. Seastone (www.seastone.com) research indicates that almost 50 percent of consumers now purchase some sort of package along with a gift card.
Gift card packaging increases gift card sales, and allows consumers to truly personalize the gift, beyond just choosing the retailer.
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Uses for voucher cards are proliferating rapidly. Has anyone received a mail-in rebate from AT&T Wireless lately? It arrives in the form of a preloaded, bank-issued debit card that can be used anywhere. Not only are they counting on customers failing to go to the trouble of mailing in a rebate, but they’re also counting on customers either not using the rebate cards or not using all of the their value. No wonder several states are considering outlawing mail-in rebates. (Some bank-issued, preloaded cards, however, can now be deposited into your bank account for a small fee. Nothing beats liquidity.)
Retailers count on a slightly different dynamic for gift cards. First, they possess the purchase dollars for a valuable period of time before they are reclaimed by a customer (like AmEx Traveler’s Checks). And second, not all gift cards are redeemed or are used for their full value. What a racket.
Self-use voucher cards have yet another dynamic. These would include most of the phone minutes cards, iTunes cards, etc. sold year-round in checkout lanes. While the retailers and their card suppliers do enjoy the benefit of positive cashflow from these transactions, the dollar value of self-use voucher cards tends to be more fully used than typical gift cards or rebate cards.
Gift cards are a sign of the times and will continue to grow and have tremendous upside for many years to come for several reasons including:
1. Ease of purchasing on-line at home or at work in quantities or individually;
2. People are busy. Purchasing more tangible gifts are time consuming;
3. You can’t go wrong with purchasing a gift card–there is lower risk that the recipient will be disappointed.
Gift cards are also good for retail business because they do not get returned. Better yet, this assures that the consumer will come in to the store or shop online and more than likely will exceed in purchases the dollar value on the card.
Every gift sends a message. For some folks, a gift card means freedom to choose, which is much appreciated. For some folks receiving them, gift cards mean, “You didn’t care enough to take the time to find me something special.” For some folks, a gift card that isn’t fully refundable (Pier 1) can generate frustration and then resentment (against the store and/or the giver.) Sooner or later, the negative feelings in the latter 2 groups will create opportunities for smart retailers and caring givers. Or will gift card sales increases just lead to the next step: more folks who just give cash in an envelope?
Sure–gift cards are the new acceptable way of giving money, without the emotional coldness of cash. It also provides a speedy, e-commerce way for givers to be time-efficient as well as thoughtful.
Next up: segments of shoppers beyond newly-weds creating online gift registries in conjunction with gift cards (teens, tweens, singles and matures).
Gift cards are a trend with staying power; they will continue to grow at double-digit rates for the foreseeable future, and then level off at a high plateau. After all, they’re convenient, easy, quick, practical and don’t require wrapping or schlepping. They’re also the perfect solution to an ever more common dilemma: what to give someone who already has everything they could ever want or need! (Indeed, 40% of people say they prefer a gift card to a gift.)
How can retailers further capitalize? They must plan and be ready to execute. That means inventory, pricing, staffing, merchandising, supply chain, customer service, and IT (tie-in with your loyalty program!). Most fundamentally, in my view, is that THEY MUST SUPPORT THE CROSS-CHANNEL SHOPPER. Make it easy, inviting and rewarding to use gift cards online, in the store, from the catalog. Your consumers will reward you with more visits, more spending, higher tickets and more loyalty.
How great is it for a retailer to get his money in advance? Then, when someone cashes it in, they spend, on average 40% above the face value of the card.
Also, keep an eye on the value-added segment with cards doing double duty as DVDs and CDs.
I had the prestigious position (!) of Fundraising Coordinator for my kids’ school for about four years. And I learned a lot about gift cards (more than I really cared to know). These were my key learnings:
1. Many purchasers of gift cards buy them for themselves, because they are like cash, and allow them to stay on budget over a given month. Because they are very convenient, raise money for a good cause, and keep you on budget, they are a big “win” overall for many people.
2. Fundraising organizations can make a lot of money by selling gift cards through schools, sports teams, etc. Some retailers offer up to 15% back (most grocery retailers have much lower rebates, but over time, the money is quite huge).
3. Folks who are purchasing gift cards for themselves become loyal to retailers, because they are committing their shopping for the upcoming month to a particular retailer.
I don’t know the stats on how many gift cards are sold through fundraising vs. directly through the store. I can confirm that the success of this program at our school indicates that this is yet another avenue for gift cards to become a more mainstream alternative to cash, while benefiting the community.
The convenience of giving gift cards makes them ever popular with consumers of all ages. And the increasing choices in cards available will result in increased sales for many years to come.
Someone recently told me that a couple set up a wedding gift registry on the E-vite website, and one of the gifts requested was a gift card from Home Depot. Go figure that one.
I wouldn’t expect to see this trend decline anytime soon, considering our hectic lives are becoming more and more time-starved. From a retailer’s perspective, there’s a tremendous opportunity for those that effectively merchandise gift card holders as well…a 60-70% margin at $3-$5 a pop can generate some easy money, and makes the impersonal gift card a bit more personal–which may ultimately help to prolong Gift Card sales growth.
I also see strong gift card growth in the restaurant industry. Our 2007 Database of Foodservice Technology shows close to 40% of foodservice companies operating 25 or more restaurants have gift card/stored value software implemented. This is up from about 30% in our 2005 version.
I believe gift card sales will be very strong this year and continue to be so for years to come. I further believe savvy retailers will start taking advantage of selling more gift cards that are accepted at multiple retailers. I also see competition for Visa and Mastercard in that space where other coalition type cards can be sold with out their standard service fees. These cards will add more value to both the consumer who buys it and the receiver who will use it. It also will provide an opportunity for retailers to market to those gift card holders to choose them over others in the coalition. Bottom line: the consumer feels like a winner while retailers have the opportunity to increase sales!
I’m with Liz on this one…gift cards have become the socially acceptable way to avoid shopping–without the crassness of cash. Their use will continue to grow as people happily shed the burden of shopping for someone they either don’t know that well or don’t know how to buy for.
One key point on the gift card that differentiates it from an envelope full of $20s is the retailer’s name. The giver is, in effect, saying “I think you are a Home Depot person.” This is a tremendous positioning tool for retailers. When a person gives a Home Depot gift card, they are giving Home Depot as their gift. This allows the retail brand to effectively assume the brand of the gift. Remember “when you only care to send the very best”?
One important promotional tool for gift cards that was not mentioned here is gift card packaging. Retailers across the board are now offering bags, boxes, tins, and other innovative packages along with gift cards. Seastone (www.seastone.com) research indicates that almost 50 percent of consumers now purchase some sort of package along with a gift card.
Gift card packaging increases gift card sales, and allows consumers to truly personalize the gift, beyond just choosing the retailer.