Once a sluggish month for sales, the surge in holiday gift cards has made January increasingly important for fourth-quarter performance.
“Although January is a typical clearance month for the bulk of specialists and represents the smallest monthly selling period of the year, the month accounts for a large majority of gift card redemptions and, for a handful of specialists, offers a glimpse into spring selling,” said Thomas Filandro, retail analyst at Susquehanna Financial Group, in a research note.
Retailers don’t record gift cards as a sale until they are redeemed, and the National Retail Federation estimates that 40 percent of cards were used in January, with many shoppers spending more than the value of the cards.
Gift cards are blurring the traditional holiday time line, extending seasonal spending past New Year’s into January and February.
“If you are closely watching same-store sales, a lot of those numbers are not as useful as they use to be. We are not big believers in same-store sales,” said Craig Johnson, president at Customer Growth Partners. “With Internet sales growing and gift cards and redemption time figuring in, they are even less relevant. That’s why we believe the truest comparison of holiday sales is the quarterly results, which account for November, December and January sales. It is harder to play games with quarterly numbers than month-to-month sales comparisons.”
According to the NRF, gift card spending in November and December reached $27.8 billion, beating the group’s original estimate of $24.8 billion. This stellar gift card sales performance and blast of cold weather provided consumers a reason to shop and helped retailers rebound after a difficult holiday.
“This year, the late onset of winter compelled consumers to cash in their holiday gift cards on the seasonal apparel they didn’t buy pre-Christmas,” said Paul Walsh, vice president and senior business meteorologist at Planalytics.
Retailers that offered trend-right, clearance winter merchandise as well as full-priced spring assortments came out on top. Department stores Kohl’s and Federated attributed their better-than-expected results on strong gift card redemptions throughout the month.
“The success of holiday clearance, which was bolstered by strong gift card redemption, fueled January transactions per average store up a estimated 15 percent,” Filandro said in a note.
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“Teens look at gift cards as instant gratification,” said Christine Chen, retail analyst at Pacific Growth Equities. “For adult women, however, there is a lag effect. They may hold onto their cards anywhere from three to six months, waiting for new spring merchandise or must-have items.”