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As holiday budgets tighten, gift cards remain popular


Although holiday sales overall are expected to take a hit this year, analysts say gift cards’ popularity will continue.

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As budgets tighten, prepaid cards remain a popular holiday gift option
2008 gift card resources

Editor’s note: This story has been updated. See the 2013 gift card survey and accompanying chart.

That gift card in your holiday stocking likely won’t be worth as much this year — but it might come with some really awesome packaging.

Not only are gift card overall sales expected to take a hit in 2008 amid economic turmoil and consumer uncertainty, analysts say, consumers will also be buying gift cards in lower denominations than they did last year, according to a recent survey conducted by consumer research firms National Research Network and The Hartman Group Inc. “One-third of consumers (who buy or receive gift cards) plan to buy fewer gift cards or spend less on gift cards this November and December holiday season due to the current economic situation,” says the poll from NRN and the Hartman Group entitled, “Gift Cards Purchase & Redemption, Pre-Holiday Outlook 2008.”

All this bad news doesn’t mean gift cards are disappearing. On the contrary, “over half of consumers are planning to purchase at least one gift card this holiday season,” says the report by NRN and Hartman. Gift cards “are the most popular category of present,” says Anthony L. Liuzzo, professor of business and economics at Wilkes University. Even though sales as a whole will be lower this Christmas, gift cards should make up a sizable portion of retailers’ revenues. Gift cards “continue to increase in popularity relative to all sales,” Liuzzo says.

Gift cards offer benefits
What’s behind the ongoing consumer love affair with gift cards?

Some of it might be simply a passion for practicality. Tim Henderson of cultural-trend research company Iconoculture says his firm expects more “practical gifting” by consumers this year. For the giver, gift cards represent a way to save time that would otherwise go toward tracking down that perfect gift. Gift cards also can help buyers save money, since choosing a lower-denomination gift card can help keep budgets in line. They also make every dollar count more, since the end result is a gift that gets appreciated rather than tossed in the back of a closet, according to Teri Llach, group vice president in the marketing department of Blackhawk Network, the largest provider of third-party prepaid cards.

Allowing recipients to select their ideal present should help avoid disappointment, since gift getters may have become more demanding over the years in response to changes in the gift-giving landscape, Henderson says. The rise of wish lists and gift registries has meant increased involvement from the recipient. “Over the years, it’s become more of a Wild West-type of gifting,” Henderson says. “It’s basically the consumer saying, ‘Give me the gift that I want.'” At the same time, passing along an unwanted gift to someone else has shed some of its stigma. “Re-gifting has come out of the closet,” Henderson says.

Despite these developments, gift cards still beat giving cash. “If gift cards are impersonal, then cash is super impersonal,” Liuzzo says.

The changing face of gift-card giving
The continuing rise of gift cards doesn’t mean everyone will get exactly what they want this year. Rather than more frivolous gift cards to luxury retailers and the like, consumers should instead receive gift cards to use for more necessary spending. “This holiday season, restaurant gift cards and gas gift cards are expected to gain popularity, but discount store gift cards are again expected to be most popular,” according to the survey from the Hartman Group and NRN.

We might also see a change in who gets gift cards. As consumers rein in their holiday spending, some former gift getters will be left off the shopping list. “When people cut back on the holiday spending, it will be at the margins,” says Liuzzo. That means while family and close friends can still expect something, distant relatives, acquaintances and service people — all of whom tend to be perfect candidates for gift cards — are more likely to get left in the cold this year. “There will be some people that won’t make the short list,” Liuzzo says.

Meanwhile, some experts say that recent high-profile store bankruptcies, like the Sharper Image’s filing earlier this year, could encourage buyers to steer clear of gift cards from potentially troubled retailers. “What consumers have become aware of is when you hold a gift card, you are an unsecured creditor to the retailer,” says Duncan Douglass, an attorney with Alston & Bird, LLP, who specializes in gift cards and the state laws that apply to them. “People are concerned that in these troubled economic times, retailers may not be able to honor those gift cards,” he says.

But consumer strategist Henderson disagrees. “I think that’s creating fear where there was no fear to begin with,” he says, noting that a store’s balance sheet is of little or no concern to most shoppers. Henderson’s stance corresponds to the findings of Archstone Consulting’s 2008 Holiday Gift Card Survey. “Despite the recent press regarding retailers in bankruptcy protection not honoring gift cards, approximately 70 percent of respondents were not aware of this as a potential issue. Of those who are aware of the issue, most are no more than ‘mildly concerned’ about it,” the report says.

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Holiday shopping tips

Problems for retailers might actually benefit consumers. “Gift cards aren’t likely to go on sale, but a lot of retailers are likely to have their goods and services on sale this year,” says attorney Douglass. That could allow gift givers to stretch their dollars if they opt for merchandise over gift cards, or it could enable gift card recipients to get more bang for their buck when they redeem their cards in-store.

Gift cards get personal
There continues to be a move toward greater personalization of what was once a relatively uniform piece of plastic. “Consumers have definitely been on a personalization trend for a number of years now,” says Iconoculture’s Henderson.

With the wide variety of gift cards on the market, “I can personalize the gift cards by not giving everyone the same card,” says Llach of Blackhawk. Additionally, online gift card shopping in some cases allows buyers to add personal messages or upload photos to the gift cards they give. “Online, you have a lot more opportunity to give people more flexibility,” she says.

Additionally, marketers and consumers have started to address the issue of bland gift card packaging. For gifts, “You want that big bow, you want that big wrapping, you want that tearing. Gift cards don’t allow that,” Henderson says. However, “there are a number of ways to restore some of the excitement,” he says. Llach agrees. “Placing the gift card in something that’s fun is definitely popular,” she says. That includes unusual packaging available online — like a gift card encased in 35 lb. concrete block that must be cracked open — or something more everyday that still establishes a theme, like giving a tool box that holds tools and a Home Deport gift card.

Llach also highlights the ability to use gift cards to set the stage for a shared experience, such as giving a restaurant gift card, a movie theater gift card and a bottle of wine as a package. In this way, “Gift cards allow you to put together time with someone,” Llach says.

Flexibility, budgets key in gift card redemption
Flexibility and budgeting are at the top of shoppers’ minds when it comes to gift card redemption. According to the Archstone survey, prepaid debit cards are the most desired type of gift cards, chosen by more than half of the respondents as their top choice. The fees (see 2008 gift card comparison table) often associated with such cards weren’t on the minds of either the pollsters or respondents, with the question of added costs neither asked about or brought up. That’s because the ability to redeem anywhere trumps price, says Michael Unger, a principal in Archstone’s consumer products and research practice. “The flexibility comes at a premium,” he says.

While consumers might be willing to pay extra for a “spend anywhere” card, that doesn’t mean they aren’t concerned about their pocketbooks. Economic woes mean consumers are likely to redeem gift cards for everyday items this year rather than simply splurging on something more frivolous. Henderson says he expects to see more gift cards used for necessities this year. “Consumers who are anxious about the economy can use gift cards to purchase staple products,” he says. Concern over the economy may account for the leading categories of gift card, as reported by Archstone: after prepaid debit cards, the next most desired category of gift cards is restaurants, fast food, while big box, mass merchadiser are the third most desired.

And redemptions could increase in speed. “I’m predicting that we’ll see more consumers redeem gift cards faster,” Iconoculture’s Henderson says, since they may be in a hurry to buy those items they previously put off. “This is an opportunity for the consumer who has been pinching pennies all year to go out and buy the shoes they have been wanting,” Henderson says. Discounted merchandise after the holidays could also spur redemption. “My personal thought is you’re going to see people redeeming a little faster to take advantage of sales in January and February,” Blackhawk’s Llach says.

Consumers should expect less
In addition to the other trends, gift getters should lower their expectations this year. “Reality for 2008 is these are very tough economic times,” Henderson says. That means recipients will be understanding if this year’s gift card carries a lower value than cards received in the past.

Exactly what the economy means for consumers and retailers is still undetermined. Regardless, experts tend to agree on one thing. “I think this is going to be an interesting holiday for everybody,” says Llach.

See related: Gift cards 2008: Special section,  2008 gift card comparison chart, Top 10 creative ways to wrap gift cards, 8 ways to get gift cards for less, Tips: Don’t let those gift cards expire

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