While online and retail holiday shopping sales have met or exceeded expectations for most retailers in 2005, there is another “rush” for all retailers to prepare for: gift card redemption.
According to Hitwise, an online intelligence service, the market share of U.S. Internet searches containing the words “gift card” was up 32% for the week ending December 10, 2005 as compared to the previous week. In fact, the National Retail Federation expects gift card sales to increase 6.6% this holiday season to 18.48 billion dollars, with consumers spending an average of $88 dollars on gift cards or 15.6% of their holiday shopping budget.
Gift certificates have always been a popular gift choice for the hard to please recipient or even for the lazy shopper. For the gift giver, it allows a quick purchase at whatever store or online merchant they select, with a dollar amount that fits their budget. For the recipient, they can select what they want from a particular merchant and for the most part use the card at their convenience.
But for some, giving a gift card is a cop-out, reasoning it is too impersonal and opting to hand pick a gift and selecting something special and unique for a loved one or friend. However, for some, the gift card is the ideal gift choice, with family or friends even suggesting the store or online merchant they prefer.
For the merchants, it has extended the holiday shopping season because they cannot record the sale until the recipient uses the gift card to make a purchase. This holds down sales figures in November and December, but provides a boost in January when most cards are redeemed. An additional boost is provided by the fact that most of the shoppers who redeem their gift cards typically spend 15% to 50% more than the face value of the card when they select their holiday gift.
There are some downsides to gift cards. Some retailers clear unused gift cards off the books by subtracting off of the face value of the card, an inactivity fee (usually $2.50 per month) after a certain amount of time. Some gift cards have an expiration date and others come with special conditions or restrictions. However, consumer outrage has prompted many states across the country to introduce legislation limiting or banning the fees. Additionally, there is no federal law on gift cards but, two Republican congressmen, Joe Barton of Texas and Charlie Bass of New Hampshire, have requested that the Federal Trade Commission investigate the way retailers conduct their gift card programs.
Is giving a gift card too impersonal? Is it the best gift choice? That question is up for debate and is a personal preference. But with annual gift card sales projected to reach 90 billion dollars by 2007 (Ernst & Young 2005), the gift card is here to stay.