Saturday, December 28, 2002

Gift cards could rescue retailers

Dollar volume will be recorded only after they're redeemed for goods

By Randy Tucker
The Cincinnati Enquirer

The holiday shopping season has been a big disappointment, with some analysts predicting the worst year-to-year Christmas comparisons for retailers in three decades.

Even last-minute and post-Christmas markdowns haven't lured enough shoppers into stores to push holiday sales above expected marginal gains of 2 to 4 percent for the season.

But many merchants still have a wild card to play that could at least soften the blow of tight-fisted consumer spending when the final numbers for the holiday season are tallied.

Retailers sold more electronic gift-cards than ever before this holiday season, and consumers redeeming their cards are expected to account for much of the post-Christmas traffic in stores.

"It's been pretty hectic with the redemption process, especially in the past couple of days,'' Tina Baldock, district manager for Kirkland's gift and home decor retailer, said Friday. "We've seen so many gift cards, it's amazing.''

Kirkland's was one of several retailers in Greater Cincinnati who implemented gift-card programs just before Thanksgiving, essentially replacing cumbersome gift certificates.

"The gift cards have been a huge success for us,'' Ms. Baldock said. "I would say that our sales from gift cards are more than double our sales of gift certificates last year.''

But retailers can't book gift-card sales until the cards are actually used, under generally accepted accounting principles, which means most cards that were purchased as gifts before Christmas haven't shown up as sales.

"Approximately 85 percent of all gift-card usage occurs within the two weeks following Christmas,'' said Mike Brewer, a spokesman for Louisville-based Stored Value Systems Inc., one of the nation's leading providers of gift cards and gift-card services. "We anticipate that most retailers will see a slight increase in their overall holiday sales figures as a result of gift-card redemptions.''

More than 80 percent of national retailers now offer electronic gift cards with purchase amounts ranging from $5 to $100 or even more.

The credit-card sized gift cards are worthless until activated, which occurs when the card is purchased.

Once activated, the purchase price is stored on the card electronically in the magnetic stripe on the back of the card. The card can then be used like cash, but only in the store or chain from which it was purchased.

If every gift-card sold this holiday season were redeemed for its full value before the end of December, the impact on holiday sales could be significant.

Consumers are expected to buy an estimated $36 billion to $38 billion in retail and bank-issued gift cards this year, with more than 90 percent of those gift cards being bought around Christmas.

That compares with an estimated $30 billion to $32 billion in gift card purchases in 2001, according to the Boston-based industry consulting firm Bain & Co.

This year's total gift card sales represent 18 to 19 percent of the estimated $209 billion in sales retailers are expected to generate this year for the months of November and December - a period that can account for as much as 40 percent of some retailers' annual sales and more than half their yearly profits.

And gift cards can generate even more revenues than their face value.

On average, 61 percent of gift card recipients spend more than the value of their cards, according to Point of Sale Solutions Inc. in Columbia, Md.

Also, about 10 percent of gift cards are never redeemed, due to loss or lack of interest on the part of the recipient.

That means, overall, merchants hand out only about $90 worth of product for every $100 worth of cards sold.

And cards that are not redeemed, although not recorded as sales, add to cash flow and become extra income.


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