Retailers Using Gift Cards to Incentivize Sales

By the time you read this, Black Friday — the name conjures up anything but rosy profits — will have come and gone and retailers will have a better indication of 2009 holiday sales momentum.

Whatever the outcome, gift cards are at the top of the gift recipients' list, according to the National Retail Federation's 2009 Holiday Consumer Intentions and Actions Survey.

How did a piece of plastic preferred by 55.2% of those adults surveyed jump to the head of the leaderboard's gift-giving items? Survey respondents chose gift cards ahead of clothing, books, DVDs and electronics.

The gift card concept evolved from retailers' paper gift certificates. Technology has given the plastic cards flexibility for both retailers and consumers. For retailers, plastic cards are less costly to process and easy to track electronically. They provide potential revenue. Drive traffic and brand awareness. For consumers, they are convenient, easy and transferable. A win for everyone.

The first gift card with recorded value on a magnetic strip was introduced by the Mobil Oil Co. in 1995, reported one source. Since 1998, annual gift card sales, both retailer and credit card and bank-issued cards have grown from $12 billion to an estimated $88.4 billion in 2008, reports TowerGroup.

Last year the recession slowed gift card sales for the first time, down 9%, according to TowerGroup. Demand was also dampened by retail bankruptcies where some consumers got burned with losses on store-branded cards. Excessive fees, mainly on cards issued by financial institutions, turned some consumers off to the products.

The feds stepped in with a provision to limit fees and make gift cards more transparent under the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. The new law takes effect next August.

While gift cards still remain at the top of shoppers' holiday lists, food retailers have turned to the promotional aspects of gift cards. On Black Friday, Kroger began a two-week offer of $10 off the grocery bill with every $100 spent on selective gift cards. The offer is good with the Kroger loyalty card.

Others are tying into fuel incentives. Giant Eagle is offering a 20-cent per gallon fuel discount with every $50 spent on qualifying retailer gift cards. Supervalu's Shop ‘n Save is doing the same at participating Sunoco, BP and Shop ‘n Save Express Fueling locations. Meanwhile, Toys “R” Us is tying a $50 gift card incentive to the purchase of the $100 iTouch in the hopes of toy purchases.

If demand remains high, gift cards won't go away but may morph into something else. The recession has brought everything back to earth, making gift-giving a moving target. This Black Friday may be less frenetic as shoppers evaluate the true spirit of gifting and attempt to make an emotional connection with gift recipients. This may mean spending time and getting together in celebrations with family and friends. Good news for food retailers.

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