Gift card popularity may not save holiday sales

Gift cards are personal, practical, and they come with a price tag that matches anyone’s budget. That's why the National Retail Federation expects 80% of shoppers will add gift cards to their basket this holiday season.

But as time is ticking down, the rise in gift card popularity may not be enough to save face for the nation’s retailers this holiday as they are forced to discount high levels of inventory amid a lackluster holiday shopping season, according to Wall Street retail analysts.

NRF expects shoppers will dole out an average $163.16 on gift cards ahead of the holidays, up 4% from what they spent last year and the highest level in the federation’s 11-year survey history. Total spending on gift cards will reach $29.8 billion, during the holiday season alone. For the full year, gift card purchases are expected to surpass $118 billion in sales, an 8% increase over 2012 as they have become a popular year-round gift, according to CEB Tower Group Advisory.

“Shoppers today recognize gift cards as the perfect fool-proof option for friends and family,” said NRF President and CEO Matthew Shay.

CARD PREFERENCE
Consumers like Brandy Arena, a first year law suit at Loyola University in New Orleans, prefer getting gift cards and request them when asked what they might want for Christmas.

“My favorite cards to get are Visa, Amazon or Barnes & Noble,” Arena said.

Peggy Knight of Rogers said her adult kids love getting gift cards so they can shop after Christmas sales and get more "bang for their buck" and she likes receiving them for the same reason.

“We all like Visa gift cards and I love Amazon,” Knight said.

The NRF survey said gift cards are welcomed by consumers of all ages, while those over age 65 are the most likely to give them out. Department stores remain the most popular gift card choices among those surveyed by NRF garnering 40.3% of the vote. Restaurants also are popular with 34% but nearly one in five (19%) will give the gift of a hot cup of coffee – up from 13% in 2009. Another  20.1% will purchase gift cards from an electronic store and 12.7% will head to an online merchant.

“Gift givers know that many of their loved ones may have been holding back on spending on themselves all year long, and would love nothing more than to receive a gift card that allows them to purchase whatever they want,” said Prosper’s Consumer Insights Director Pam Goodfellow.

Despite the rising popularity of gift cards, roughly one in four still thinks they are too impersonal.

CHALLENGING CLIMATE
Economist agree that gift card popularity and increased online shopping won’t likely be enough to save the holiday for retailers facing fierce competition, high inventory levels, inclement weather and wobbly consumer confidence.

Despite massive promotions from the nation’s largest retailers, this holiday season is shaping up to be rather challenging. It began with a 2.9% drop in sales during the Thanksgiving/Black Friday weekend. Retail estimates of $57.4 billion in sales were rang up in the four-day period by the 141 million people who shopped. The number of shoppers rose by some 2 million more than last year but the average consumer spent $407, roughly 4% less than last year, according to a NRF survey.

Retailers didn’t get what they wanted from Black Friday and they will need to make it up in the next few days, forcing some panic sales, according to Poonam Goyal, an analyst for Bloomberg.

Nearly one-third of all consumers are expected to spend less in 2013 than they did in 2012, according to a recent survey from global research consultancy TNS.

“We believe retailers have to go the extra mile this holiday season with compelling pricing, promotional strategies, and delayed payment options to attract the level of shoppers they are custom to seeing,” said Danica Konetski, author of the study.

Konetski reports 34% cited increased living expenses and their lack of disposable income for the reason why they are scaling back this holiday.

Consumers who rely on government programs such as SNAP and WIC are facing even tougher choices this holiday season, as the 16-day partial U.S. government shutdown and recent expiration of increases in the aid programs take their toll. Of those who are on the program, nearly 44% are looking to spend less this holiday season. Kantar Retail said this is a telling number given nearly 8% of primary shoppers use the SNAP/WIC programs.

“We believe retailers have to go the extra mile this holiday season with compelling pricing, promotional strategies, and delayed payment options to attract the level of shoppers they are custom to seeing,” Konetski said. “Our research indicates shoppers with lower budgets tend to be more brand loyal, so it’s important for retailers to be proactive and do what is necessary for the consumer this holiday season. Their efforts will go a long way in engaging customers and generate long-term trust.”

CRUNCH TIME
With just eight shopping days until Christmas it is evident that consumers are ready to wrap up their shopping lists before it’s too late. NRF found that nearly half (49.9%) of holiday shoppers indicate they plan to do the remainder of their holiday shopping online, the highest percent in the survey’s 11-year history. As of December 9, before the most recent weekend, 32 million holiday shoppers had not even started shopping. 

“It comes as no surprise that Americans are eager to shop online in the coming weeks as busy schedules and a shift in the calendar have made the convenience offered by retailers’ mobile apps and websites even more attractive this year,” said Shay.

He said competitive prices and free shipping offers have helped win favor with consumers.

NRF said as crunch time begins 45% of consumers surveyed said they will wrap up their shopping at their favorite department store and 37% will head to discount stores, while 13.7% will be at close-out stores.

“Given all the outside factors that are impacting the holiday season, retailers have their work cut out for them, said Konetski.