NEW YORK — The gift card category is positioned to benefit during the fourth-quarter selling season in which some forecasters are predicting consumer spending to be flat, said Erin Armendinger, managing director, Baker Retailing Initiative at the Wharton School, Philadelphia.
Retail consulting group Retail Forward is forecasting flat growth — compared with a 4.5% decline a year ago — for the holiday fourth quarter. The International Council of Shopping Centers recently released their forecast for a 1% growth in same-store sales in November and December and 1.5% in January.
“Given the markdowns that occurred last holiday season, consumers are going to be strategically waiting for discounts this holiday season,” said Armendinger. “Black Friday will probably not be the event that it normally is, although retailers will try to bring consumers into their stores. Customers have become accustomed to discounting, value hunting and generally shopping on their terms.”
Armendinger spoke during an American Express-sponsored gift card teleconference here last month. American Express announced it was dropping all fees associated with its gift cards after purchase. Charges for activation, monthly service, checking balances and card replacements have become a source of consumer frustration with gift card purchases.
According to a 2008 National Retail Federation survey, such fees were one of the top three reasons why people would be less likely to purchase gift cards.
Armendinger mentioned positive spending indicators for the fourth quarter. According to a recent Bloomberg survey, retail inventories are down 10.7 % from a year ago. “This means that retail supply and demand are now more in sync and, if the consumer continues to buy in the same levels that they have been so far this year, there will not be nearly as much discounting as we saw last holiday season,” she said.
There is also the “pent-up demand” factor, she noted. “American consumers have deferred purchases for some time now and simply want to make discretionary purchases again. It is hard to quantify the positive impact that this will have on the holiday season.”
Given the uncertain retail climate, Armendinger said gift cards “seem to be a perfect complement to current consumer behavior: The purchasers can present a gift to someone without being confined by when they buy the gift, how much it costs or if and when it will be discounted.”
The marked-down factor also favors gift card purchases because the gifters know that their gift card won't be marked down and universal gift cards allow the recipient to decide when and where to spend their money.
If consumers are taking a chance and waiting for markdowns, gift cards will allow recipients to defer purchases until the post-holiday sales season.
Armendinger said consumers use gift cards because they are too busy to shop during the holidays especially for a gift that the recipient may or may not like.
Gift card redemption tends to stimulate additional retail sales, according to several studies which show that about a third to more than half (34%-55%) of consumers with gift cards spend in excess of the value of their gift cards when redeeming them, generally between 25%-35% spend more.
“This is also a good thing for retailers. Given that most gift cards are purchased during the holiday season in lieu of traditional gifts, retailers have the opportunity to turn January into a second wave of holiday as people use these gift cards,” Armendinger said.