Gift cards not only take a lot of the stress out of holiday shopping for consumers, but they are also boosting store sales for retailers well beyond Christmas.
While the International Council of Shopping Centers estimates gift-card purchases will be between $30 billion and $40 billion this holiday season, a majority of the related profits will not appear in holiday sales figures. Retailers do not record gift cards as a sale until they are redeemed, leaving a hefty amount of sales for after the presents are unwrapped.
As a result, holiday sales numbers might appear softer. This “gift-card effect” increasingly propels sales into January and even February.
The week after Christmas has traditionally been a period for returns and exchanges, with most merchandise discounted to make room for spring shipments. Now there are more shoppers using this period to shop for themselves, using gift cards.
As a result, more retailers are selling products at fuller price points, said Dan Butler, vice president of retail operation and merchandising at the National Retail Federation.
“This doesn’t extend the gift-giving season, but [it] increases postholiday business,” he said.
Archstone Consulting attributes the strong performance of retailers in the first half of 2006 to the popularity of gift cards in the holiday season of 2005 and expects the trend to continue into the first quarter of fiscal 2007.
In addition, once in the stores, shoppers are spending more than the value of their gift card. According to Archstone, 34 to 55 percent of consumers spend more at redemption than the value of their card.
Butler added, “People are not exchanging or returning as much after Christmas, and they have a reason to shop even after the holidays are over.”
Merchandising of the cards has also changed over the past five years. Gift cards are now promoted at the point of sale as well as the point of purchase, such as on end caps and adjacent displays. The Internet is also a key distribution channel for the cards.
On Wal-Mart’s Web site, the retailer offers a variety of gift cards for every occasion of the year. The company also offers a customized, photo gift card for shoppers.