Gift Cards Galore!
By Martin Brown
Retail gift cards, which have become increasingly popular with holiday shoppers in recent years, are set to take a dive this Christmas as the slowing of the economy has slowed their sales as well.
During the last two holiday seasons the cards were a quick and easy way to give a gift of any amount to friends and loved ones who are regulars at almost any retailer. From Starbucks, to Blockbuster, from Nordstrom to Safeway or Barnes & Noble, if it’s something you can buy, chances are that you could find a gift card way of saying “Happy Holidays, now go buy your own gift!”
Even the airlines got into the act with their own branded gift cards.
But this year is going to be different. The Tower Group Inc. of Needham, Mass., which focuses on the financial services industry, forecasts gift-card sales to fall 9 percent overall, led by a 14 percent drop in store-brand cards. “There’s a lot of scary stories in retail right now,” said Brian Riley, director of bankcard research for the company, “this is just one more piece of bad news.”
This drop in retail gift card sales is expected to be offset in part by a 5.6 percent increase in bank-branded prepaid cards that can be used anywhere MasterCard and Visa are accepted for payment.
Before you suspect that the retail-shopping world as we know it is coming to an end, consider the fact that, for the full year, Tower Group expects shoppers to buy $88.4 billion worth of gift cards: not an insignificant amount but the first year-to-year drop since 2001.
There are three very good reasons why the blizzard of gift card buying of the last few years has slowed:
1. The overall economy has slowed dramatically and that takes a toll of the amount of the gift card many of us buy.
Last year’s $50 gift card is perhaps this year’s $35 card.
2. Gift cards never go on sale.
After all, a dollar is still a dollar. But everything else in retail stores this holiday season is marked down. So, for example, that $100 cashmere pullover is now $65. You can give like a big spender and still shop on a budget when you give that sweater—something a gift card won’t let you do.
3. Even more troubling is shopper loss of confidence regarding the stability of retailers to one day honor those gift cards.
Linens & Things, Circuit City, and The Sharper Image are just a few of the retailers who’ve suffered economic instability and bankruptcy in the past couple of years. For consumers, the thought that your gift card’s value could vanish is of course unsettling. Just this year alone, consumers lost about $100 million in gift-card value after retailers shut down, according to the Tower Group—
—which is why your best hedge against a retailer’s default is to buy a MasterCard or Visa branded gift card; or to purchase a gift card from a retailer that has unquestioned standing in the marketplace, such as a Wal-Mart or Target stores.
If you do receive one or more gift cards this year, my advice is to hold on to them until January, when retail prices are expected to take another 20% dip before possibly coming back up in the late spring and early summer of 2009. And if you insist on playing Santa with gift cards, check out the financial stability of the retailer before you buy…
…Or, again, play it safe and give a Visa or MasterCard bank-backed gift card.
Making your friends or loved ones the unsuspecting creditors to a bankrupt retailer is no way to say, “Happy Holidays!”
