Retailers once considered gift certificates a necessary evil. Now consumer demand is driving a new approach.
By MARK ALBRIGHT
Published December 23, 2003
The longest lines this holiday season are not for a hot new toy or the latest gotta-have-it gadget.
Shoppers are queuing up for gift cards.
"We've had essentially one continuous line for gift cards since Thanksgiving," said Jeni Wadlow, marketing director at Tyrone Square Mall.
The St. Petersburg mall had to order two extra shipments of blank cards, beef up register help and deploy a clerk just to field questions in a line that was 30 deep much of the weekend. To keep the line moving, customers buying big blocks of gift cards were walked to the mall office to make the transaction.
Once regarded by etiquette experts as too impersonal, this gift that proves it's only the thought that counts has become one of the season's hottest sellers. How hot?
The National Retail Federation forecasts gift cards sales will soar to $17.2-billion, or 8 percent of all general merchandise sales during the November and December holiday season. That's almost equal to Wal-Mart's total sales during the holidays. Analysts project gift card sales will increase 30 percent this year.
Who's buying? Companies have been stocking up on gift cards for employee incentives or customer rewards. Many shoppers leaving town for the holidays don't want to lug packages on a plane that security might order unwrapped.
"Right now, we have continuous lines that are full of desperation shoppers," said Stephen Fluhr, district manager for Westfield America, which owns three regional malls in the Tampa Bay area.
Driving the trend is the changing taste of consumers. After years of being underwhelmed by the taste of friends and relatives, many busy consumers prefer the freedom to pick their own presents. A survey by Big Research Inc. found that 48 percent of consumers said they would like a gift card as a present, up from 41 percent in 2002. Another research firm, America's Research Group, this year found only 6 percent of consumers get negative vibes finding a gift card under the tree. That's down from 39 percent who considered a gift card a lazy person's gift a decade ago.
Retailers are promoting them to change that perception. Target advertised $5 gift cards as stocking stuffers. Best Buy offered a $60 gift card with the purchase of a $400 Bose Home Theater System. Sears came up with six new holiday designs for its holiday gift cards and offers to brand them with its Craftsman, Kenmore or Lands' End logos to show what type of purchase the gift-giver had in mind. "We're trying to show there is thought behind giving a gift card," said Rochelle Williams, a Sears spokeswoman.
The average gift card buyer this year buys three of them for a total of $114.44.
Many of those who give or receive the cards, however, will learn the hard way that it pays to read the fine print.
Many of the cards come laden with service fees of up to $1.50 a card. Plus some retailers and malls impose maintenance fees as high as $2.50 a month on the unpaid balance if the card is not cashed in within three to six months. Many cards expire if they are not used within two years. That means a shopper's gift or unspent balance converts to pure profit for the mall or store that sold it.
"There has been little backlash about charges and expiration dates because this is still pretty new," said Britt Beemer, president of America's Research Group in Orlando. "There will be lots of complaints as more and more people are penalized."
Already the California legislature has outlawed all service fees and expiration dates effective next month. In Massachusetts a new law requires that gift cards stay valid at least seven years.
Because stores can't count gift-card purchases as revenue until the cards are exchanged for merchandise, some economists wonder if gift card sales are one reason holiday sales are growing more moderately than many expected. A majority of them will remain unspent until January and February.
Wal-Mart, the world's largest retailer, on Monday said December sales are near the low end of its forecast - a 3 percent to 5 percent gain - because shoppers are delaying purchases or buying more gift cards.
Only a few years ago retailers considered paper gift certificates a necessary nuisance. Then they realized the advantage: Shoppers must come back in the store to cash them and usually buy more stuff. Because about 15 percent of gift cards are not fully redeemed, they can be a profit gold mine. Many experts say fewer than 5 percent of all gift cards are never redeemed.
Meanwhile, new generations of plastic gift cards are being offered that function almost like a debit card. Some can be reloaded with more cash. Many retailers and malls will replace lost or stolen cards with proof of purchase.
Competitive pressures are also coming to bear. In January Borders Books & Music eliminated expiration dates on its gift cards. In October Barnes & Noble eliminated the $1.50 a month fee charged for its gift cards not used within 12 months. Sears Roebuck & Co., which never charged maintenance fees, eliminated the two-year expiration date on its gift cards sold after Dec. 16.
"Our research showed the customer does not want to pay a fee or be confronted with an expiration date," said Rochelle Williams, a Sears spokeswoman.
