Gift-card sprees entice extra dollars
Macy’s Inc., Best Buy Co. and Abercrombie & Fitch Co. may get a boost in store traffic and revenue in the next few weeks from the redemption of gift cards, which are growing faster than total retail sales.
Spending on holiday gift cards may climb 25 percent to $35 billion this year, according to Archstone Consulting LLC. Gift cards may account for 5.9 percent of total U.S. holiday spending, up from 4.9 percent in 2006, the Stamford, Connecticut-based research firm estimates.
Redemptions of gift cards may help some retailers facing the worst holiday-shopping season since 2002. Use of the cards may shift $5 billion of December sales into January and early February, said Burt Flickinger, managing director at Strategic Resource Group in New York. Apparel retailers are responding by putting out new lines of fashions this week, in an effort to entice full-price sales.
“Gift card redemption is a huge traffic driver this week,” Flickinger said. “Otherwise people would be sitting home unwrapping Christmas and Hanukkah presents or going to the movies.”
A boost from gift cards may not be enough to overcome lackluster holiday sales. Sales in November and December, which typically comprise a fifth of retailers’ annual revenue, may rise 4 percent this year, the slowest growth since 2002, the National Retail Federation estimates. Consumers are trimming purchases because of $3-a-gallon gasoline and falling home values.
Consumer traffic to retail locations fell 11 percent in the week through Dec. 22 from a year earlier, ShopperTrak RCT Corp. said yesterday. The research firm predicts a 3.6 percent increase in sales and a 2.5 percent decline in store visits during the 2007 holiday season. It bases the projection on data from more than 50,000 retail and mall locations in the United States.
Retailers usually don’t record revenue from gift cards — credit card-sized pieces of plastic with the prepaid amount readable by a scanner — until a purchase is made. Consumers often spend twice the value of the card, making up the difference with their own cash, Flickinger said.
Retailers catering to teenagers may get the biggest boost in post-holiday sales from gift cards, according to Howard Tubin, an analyst at RBC Capital Markets in New York. About half of gift cards sold at teen retailers such as Abercrombie and American Eagle Outfitters Inc. are redeemed in December and 30 percent in January, he estimates.
Carol Curtis, a 42-year-old retiree from Colorado Springs, Colorado, stood at a mall in Mesa, Arizona, Wednesday waiting for her two teenage children who were “using their gift cards.”
Her 16-year-old daughter Erica Curtis was trying to spend $200 worth of gift cards received from grandparents and other family at The Buckle Inc., American Eagle, Kohl’s Corp. and Limited Brands Inc.’s Victoria’s Secret, Curtis said.
When Erica emerged from Victoria’s Secret with a new bra, her $25 gift card was spent. So was an additional $20 from her own pocket.
“The week after Christmas should be called gift card redemption week,” said NRF spokesman Scott Krugman.
Sixty-one percent of U.S. consumers planned to give gift cards this year, an American Express Co. survey found. Respondents said doing so made shopping faster and easier, and allowed recipients to get what they wanted.
At apparel retailers, the shift of sales into January may reduce December sales at stores open at least a year by 2 percent to 3 percent, Flickinger estimates. November and December gift-card sales may top $30 billion, an all-time high, up from $22 billion in 2006, he said.
Retailers’ fourth-quarter results often include November, December and January sales. Many report sales for December on Jan. 10.
January used to be a “throwaway month” with retailers clearing out unsold merchandise, Tubin said. In recent years retailers have begun to set out new lines right after Christmas, hoping to sell it at full price through gift card redemptions.
Many of these new lines have lighter colors than holiday clothes and transition from winter to spring, Edwards said. J. Crew Group Inc. is offering flower-print blouses and shorts in orange and yellow while Gap Inc., the biggest U.S. clothing retailer, is stocking tops and ballet flats in green and gold.