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Gift cards could get the cold shoulder this year

By Parija Kavilanz, senior writer

NEW YORK (CNNMoney.com) -- Gift cards seem to have lost their status as the perennial favorite of procrastinators this year as shoppers are showing a preference to give traditional gifts, and even cash.

"Consumers are telling us that if they can find a good gift, they would rather give that versus a gift card," said retail expert Britt Beemer, chairman of America's Research Group.

By some estimates, this year's Black Friday weekend sales -- which mark the start of the holiday shopping season -- showed that more people flocked to malls on the day after Thanksgiving and bought up more on toys, electronics, clothes and jewelry than they did last year.

"Gift cards are great if you don't know what to give someone or you can't find what someone really wants," said Beemer. "That doesn't appear to be the case this year."

Deep discounts bad for gift cards. In their eagerness to overcome last year's dismal holiday sales, merchants have been extra aggressive this year with discounts on holiday merchandise.

Retailers also started slashing prices much earlier than last year, even offering Black Friday-like deals in early November.

While this strategy was successful in drawing in the crowds and lifting sales, it may have hurt gift card purchases, said Marshal Cohen, NPD's chief retail analyst.

"Retailers were giving daily deals to shoppers in November, and these deals are getting better and better," Cohen said. "So why buy a $100 gift card when you can spend $40 to actually buy a gift, or a few gifts, for a total of $100."

"This goes back to consumers being extremely frugal and looking for the best deal for the dollar," said Cohen.

Additionally, Cohen said that gifting cash is a popular choice this year, and yet another challenge for gift cards sales.

Retailers rely on gift cards to extend the November-December holiday shopping season into January when people redeem their gift cards.

They also help retailers clear out leftover holiday merchandise. More importantly, gift cards "bring new customers into a retail franchise," said Alison Paul, leader of Deloitte Consulting's U.S. retail practice.

But Deloitte Consulting's most recent survey of holiday shoppers showed that consumers are expected to purchase a slightly fewer number of gift cards this year. Still, despite the drop off in popularity, gift cards remain a top gift option.

The Deloitte survey showed that the average number of holiday gift card purchases will dip to 5 from 5.4 last year, and the average dollar spent on each card is expected to slip to $31 from $35 last year.

"This is the first time in a few years that the average number of gift cards purchases has dropped slightly," said Paul.

Down but not out: Gift cards have grown in popularity over the last decade. However, as with most discretionary purchases, consumers cut back through the recession.

According to the National Retail Federation, the average spending on holiday gift cards fell 5% in 2009 over the prior year.

For this year, the NRF has a more optimistic forecast. The industry trade group expects Americans will spend an average of $145.61 on gift cards, up from $139.91 last year.

"Gift cards are still very popular," said Paul. "56% of consumers we surveyed said they were buying gift cards." But many of these consumers also said they are picking up a gift or two for themselves.

Since you don't typically buy yourself a gift card, the uptick in these "me-too" gift purchases could also dent gift card sales, she said.

Cohen said he's not too worried if gift card sales slow through the holidays.

"Only 10 to 15% of retail sales in January come out of gift card redemptions," said Cohen, who added that he expects purchases made from cash gifts to make up for some of the lost sales. To top of page

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