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Gift cards: Charged for the holidays
A lack of 'must-have' items means retailers have to play these cards just right.
October 29, 2003: 5:32 PM EST
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The festive lights aren't even up yet in most stores and retail industry watchers are already talking about the Grinch who stole Christmas -- and the gift cards that could save the day.

"There are just no hot items out there," said Marshall Cohen, analyst with market research firm NPD Group, in giving his outlook for the season ahead. "It's the same thing that devastated retail sales at this time last year."

That's why Cohen expects gift cards to become even more popular this year as anxious shoppers strive for hassle-free gift-giving over the holidays.

"Consumers love them because they're so convenient," Cohen said. "With gift cards, all you need to know is where someone likes to shop. It takes away the burden of trying to figure out exactly what type of clothes or jewelry or electronic gadget a person wants."

Boston-based consultant Bain & Co. predicts a 15-to-25 percent uptick in gift-card sales for 2003 over last year, to between $42 billion and $45 billion. That's about a 20 percent chunk of the overall holiday sales forecast, estimated to be $217 billion this year, according to the National Retail Federation (NRF).

"Retailers are going to market these cards very aggressively because they're designed to drive customer loyalty to a particular store," said Dan Pinkney, spokesman for Bain & Co.

Festive 2003 gift cards from electronics retailer Best Buy and department store chain Bloomingdales.  
Festive 2003 gift cards from electronics retailer Best Buy and department store chain Bloomingdales.

According to Pinkney, a shopper using a gift card doesn't have to spend the entire amount at one time. "It works like a debit card. You can use some of it once and then come back a second or third time and use it again." Also, most gift cards don't offer customers a cash back option.

"Gift cards are like proprietary currency issued by a retailer," said Richard Hastings, chief retail analyst with Bernard Sands. "The intention is to get a potentially new consumer to come in and trade in that currency and try new merchandise. We're seeing retailers across the spectrum doing as much as possible to promote them."

For example, the No. 1 home improvement chain, Home Depot (HD: Research, Estimates), announced juicy deals involving gift cards, which analysts see as a clever move to push incremental sales and clear inventory.

"The best deals include an $80 gift card for a purchase of $200 or more. That equates to a 40 percent price promotion," said Michael Baker, analyst with Deutsche Bank.

Simon Property Group, the No. 1 shopping mall operator and owner of Bloomington, Minn.-based Mall of America, said it saw a 30 percent increase in its Simon Visa Giftcard sales in 2002, and anticipates an additional 20 to 25 percent increase this year during the holidays. Its cards are usable at any of Simon's network of 238 malls around the country.

Marketing the plastic

Some stores are planning to go to considerable effort to promote the cards this season.

Upscale department store chain Bloomingdales, owned by Federated Department Stores (FD: Research, Estimates), is getting ready to launch a new set of five specially-designed cards for the holidays, including a signed gift card with a picture of singer-musician Harry Connick Jr. The cards have a minimum starting amount of $10.

"The theme of the 2003 cards is geared around music," said Frank Berman, Bloomingdale's vice president of advertising. "We've seen a steady progression each year with card sales and we expect a good pick-up this year."

Discounter Target (TGT: Research, Estimates) next month is introducing its GiftCard tri-packs, consisting of three cards featuring a puppy in a stocking image on each, and a slew of other holiday-themed cards.

"Guests purchase the tri-pack as they would three individual GiftCards and they put a specified value on each of the cards," said Paula Greear, spokeswoman for the retailer. "The cards can be used at any of our 1,227 Target stores and on Any unused balance remains on the card, until the amount is used up."

Wal-Mart (WMT: Research, Estimates), the No. 1 retailer, said that while it expects holiday sales to be "generally stronger" than last year, it does not have special gift card promotions for the holidays.

"Our gift cards are used as Christmas gifts and are especially popular as gifts from parents to students," said Tom Williams, spokesman for Wal-Mart.

While retailers will get some sales lift during the holidays, analysts say most retailers are probably counting on gift cards to spur buying in the key post-holiday period.

Home Depot
Gift cards

"If you gave someone a prepaid $100 card, it will be worth $200 a day after Christmas, when the heavy promotional activity kicks in. "Many consumers will wait until later to use them," said Cohen. "Here's the other upside for retailers: Over 12 percent of gift card recipients won't redeem their cards at all. So that's a lot of free money right there."

"The only drawback for retailers is that they have to wait until the cards are actually redeemed before they log the transaction as revenue. That makes gift cards trend a little tricky to track," Bain & Co.'s Pinkney said.  Top of page

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