Most industry reports say sales of gift cards will decline during the holiday season, but some observers expect gift card sales to increase, largely because retailers are stocking less merchandise than last year.
With fewer options on the shelves, these more optimistic observers say, shoppers may be forced to buy cards instead.
Moreover, gift card sales were slow last year because retailers marked down merchandise prices. Many stores overstocked, underestimating the impact the ailing economy would have on sales, said Jim Contardi, the senior vice president of prepaid solutions at First Data Corp.
Consumers, Contardi said, "went to the store or mall and … asked themselves, 'Where do I get the most bang for the buck?' "
"They saw the heavily discounted merchandise they could buy for whatever their budget was" and decided not to buy gift cards, he said. "Consumers believed the gift card recipient would appreciate the merchandise more than that same value in a gift card."
Contardi said his conversations with First Data's retail partners have him expecting the situation to be different this holiday season.
Merchants have "purposely ordered much less merchandise going into this holiday period so that they will not have to do the markdowns," he said. When consumers do their holiday shopping this year, "we can have a lot more people landing on the side of the gift card as opposed to the merchandise."
First Data reported last week that Black Friday helped boost gift card sales at its partner retailers by 9.8% for the week that ended Nov. 29 compared with the same period last year, while the dollar value of gift cards sold increased 17.8%.
First Data, an Atlanta unit of Kohlberg Kravis Roberts & Co., would not provide more details.
Despite predictions of bleak holiday sales by the National Retail Federation, gift cards will sell well at the point of sale, according to a report by Auriemma Consulting Group LLC.
More than half (54%) of consumers expect to purchase at least one gift card this holiday season. While the percentage is down from 59% in a similar survey Auriemma conducted in 2007, the average anticipated card-load amount was up 18.6%, to $51 from $43, according to Auriemma.
Auriemma surveyed 439 consumers online in September.
The percentage of people planning to buy network-branded gift cards rose to 30% this year from 27% in 2007 and from 21% in 2005, according to the Auriemma report. "Store-specific gift cards still have the lion's share of the market, but some consumers are not purchasing them because they are afraid of stores going bankrupt," said Nancy Stahl, the senior editor of Auriemma's "Cardbeat" reports.
A larger survey, by the National Retail Federation, contradicts those findings, concluding that the struggling economy will prompt consumers to load less funds on to gift card accounts — an average of $39.80, compared with $40.54 in 2008. For its survey, the federation polled 8,692 U.S. adults in November.
TowerGroup Inc. also expects consumer spending on merchant private-label gift cards to decrease 7% this year, but the research firm said spending on network-branded cards should increase 3%.
Despite these reports, Daniel Horne, an associate professor of marketing at Providence College in Rhode Island, agrees with Contardi that overall gift card sales this holiday season could increase, including network-branded cards.
"The driving force" for increased gift card sales "will be the lean inventories consumers will face at stores," Horne said. Retailers were "burned last year because of the economy and had to dump inventory" by dramatically dropping prices, he said.
The economy also is a factor, said Horne, who said he also expects sales of network-branded, open-loop cards to grow this year. "People are using the open-loop gift card and viewing it as a thoughtful gift because it's allowing [recipients] to live better," he said. "If you're about to get your lights shut off, receiving cash" or an open-loop card "is as thoughtful as it gets."
