A Plastic Gift

RAPAPORT… Gift cards — credit card-size plastic cards with an electronic chip storing their value — are reshaping the holiday shopping season. Although the proportion of holiday shopping dollars that goes toward gift cards is not huge — accounting for about 12.2 percent of holiday shopping dollars in Christmas 2005, according to the International Council of Shopping Centers (ICSC) — the post-holiday redemption period means the Christmas purchasing season is extending well into January.

The gift card, the updated and electronic version of the old gift certificate, has brought a new dimension to the holiday season, according to Michael Niemira, chief economist and director of research for the ICSC.

A LONGER SEASON

“It’s forcing the length of the holiday season to be longer,” Niemira says. “It’s forcing retailers to think about their inventory management differently. It’s also forcing consumers to think about the holiday season differently from the gift-giving side.”

The gift card today also has more economic impact than it did 40 years ago. “It’s grown to a size that matters,” says Niemira. Back in the 1960s and ’70s, gift certificates simply did not add up to a significant amount of holiday spending. “But the fact that it has grown so much,” he says, “means it is a force that has changed the character and duration of the holiday season.”
According to a holiday shopping pattern survey commissioned by the ICSC and UBS, a financial services company, and conducted by the Opinion Research Corporation from January 5 to 8, 2006, more than half of American households — 53 percent — bought gift cards during the 2005 Christmas shopping season.

Niemira says this year will show whether or not gift cards can continue to grow or if the proportion of holiday spending that goes toward gift cards is leveling out. “Is it a sign that maybe we’re topping out at something around 15, 16 or 17 percent of holiday dollars?” he asks.

Gift cards do face some challenges. One poll conducted last year found that when given the choice between a gift card and a package to open, most people would rather have the box to open on Christmas. That means that consumers may be close to the saturation point when it comes to gift cards. That does not, however, diminish their impact on the holiday shopping season.
“That week after Christmas and really the first two weeks of January take on a lot more significance,” Niemira says. The first three weeks after Christmas are an important gift-card redemption period. The result is a holiday season that now stretches from November through January. In fact, Christmas Day itself has become something of a shopping day because people go online and use those gift cards immediately, says Niemira.

Gift cards have an undeniable convenience, a factor that has always worked in their favor. But in today’s time-impoverished society, that convenience has become even more attractive.

A PERSONAL TOUCH

At the same time, retailers are becoming more sophisticated about the presentation of the gift card, using photos and personalizing them, which gives them a personal touch that makes them much more attractive.

One jeweler that has done that successfully is Becky Beauchine Kulka Diamonds and Fine Jewelry in Okemos, Michigan. Owner Becky Beauchine Kulka made the switch from gift certificates to gift cards about three years ago. She had the idea of making gift cards that can be individually personalized — with photos and greetings such as “Happy Birthday, Love, Dad & the Kids” at any amount a customer desires.

The store can put different images on the cards to fit with special promotions or trunk shows, says Cindi Young, operations manager for Becky Beauchine Kulka. Cards are printed out at the point of sale. Building attractive presentations into the gift card process has paid off. The cards do well all year round, when the jewelry store packages them in a tasteful envelope. But they are particularly popular during the holidays and that’s when the store packages them in a small purple box lined with cotton.

Customers really like that personalization because it shows that they have gone to the trouble of getting something tailored for the recipient, while letting the recipient choose exactly what he or she wants. “The gift card shows that ‘I shopped, I wanted to buy some merchandise, but I didn’t really find the right thing,’” says Niemira.

Individual retailer cards still probably account for the larger pool of gift cards, Niemira goes on to say, but adds that he sees more growth among generic gift cards, including Visa, American Express, mall-wide cards and similar gift cards.

OPPORTUNITY

“A lot of companies have gotten on the bandwagon and said, ‘Gee, this is something the consumer wants to have,’” says Niemira. With large mall operators managing malls across the country, mall-wide gift cards make shopping easier for consumers looking for gifts for friends and family in different parts of the country.

Jewelry retailers have seen the opportunity that gift cards represent and now can turn to providers who give retailers turnkey programs that make gift card programs possible. Gift cards are as effective for small retailers as they are for big chains.

Kate Peterson, a principal with the retail and jewelry consulting company Performance Concepts, sees more and more jewelers adopting gift card programs. “It’s a good idea from an administrative standpoint,” she says. “It’s far easier to track and manage than the old paper gift certificates.” And, she says, consumers like it. “Consumers have gotten very used to convenience,” Peterson says.

Moreover, points out Peterson, “Nobody likes to give cash as a gift, but it’s okay to give a gift card. The difference in terms of gift giving is, if I give you $50 in cash, I don’t care enough about you to learn what you really like. If I pick out a fantastic gift, it means I took a lot of time. In the middle is a gift card. It says, ‘I care enough about you to at least have found out about one of your favorite stores.’ It’s personal — but not too personal.”

Anecdotal evidence suggests that people generally redeem gift cards for more than the amount of the card itself, according to Niemira, and Young confirms that. Some of Peterson’s clients actually send out gift cards to their best customers. These are customers who will come in with a $50 gift certificate and buy $3,000 worth of jewelry. If you talk to these customers, Peterson says, they had no intention of buying any jewelry until the gift card pulled them into the store.

“There are a lot of good and sound reasons for using gift cards and it’s relatively easy for the jewelers to do it even better,” Peterson says. There is one caveat. And that is to avoid selling gift cards as what Peterson calls “a surrender sale.”

These are instances in which retailers don’t really want to take the time to sell something else, so they just sell a gift card. The problem with that, says Peterson, is when they turn to the gift card solution, they usually undersell the customer. That customer may well have been willing to spend a substantial amount on a gift. The best way to use gift cards is as a vehicle to generate add-on sales, says Peterson.

Gift Cards Usage Chart

Source: International Council of Shopping Centers 2005 Shopping Patterns