In the stocking-stuffer category>, gift cards have been just a few notches above lumps of coal for the last few years. But now, made over by legislation and retailer promotions, the cards are looking a little more like cubic zirconia and shoppers are biting.
Stores are working harder than ever to push more gift card purchases this season, experts say, with efforts to make the cards more fun, new technologies for giving and getting, and added value bonuses. By most accounts, it s working. Three out of four shoppers are expected to buy at least one gift card this season, according to the National Retail Federation, and sales are expected to reach $91 billion, a 6% increase over last year, and close to pre-recession levels, according to research firm Tower Group.
Yes, the improved economy has boosted spending across the board, but stores incentives and gimmicks are also having an effect, says David Sievers, a principal at Archstone Consulting. For example, perhaps in recognition of the fact that buying someone an ice cream is nicer than giving them $5 and telling them to get it themselves, Cold Stone Creamery now lets customers give a specific treat, rather than a specific amount. American Eagle Outfitters (AEO)
Why all the fuss? The cards are first and foremost tools to bring customers to the store, says Dan Horne, a Providence College marketing professor who tracks the gift-card industry: These don t represent just a sweater or a pair of socks sold. A 2008 study in the Journal of Experimental Psychology found that consumers who paid with a $50 gift card spent 13% to 26% more on individual items than those given the equivalent amount of cash. In this ultra-competitive retail market, attracting more gift-card givers and receivers represents such a tangible edge that a handful of retailers, including CVS (CVS)
On top of retailers efforts, new regulations instituted by the 2009 CARD Act have made gift cards a better deal for consumers, says Katherine Gerst, an assistant professor of marketing at Temple University. In particular, recipients now have five years to use their gift cards, up from a more typical two, and they also have a year s grace period before inactivity fees kick in (usually about $2.50 per month). That s significant: Consumers lost $5 billion in card value last year but are expected to lose just $2.5 billion this year, estimates Tower Group that s less money shoppers will lose to fees, mislaid cards and expiration dates.
Of course, even with the friendlier rules and retailer bonuses, gift card purchases are still fraught for consumers. There s no guarantee, as Linens-n-Things and Sharper Image gift-card holders found after both retailers filed for bankruptcy protection in 2008, leaving more than $104 million in gift cards worthless. [Customers] lost money, and there s nothing to like about that, says Brian Riley, the senior research director for bank cards at Tower Group. More commonly, cards are still largely anonymous, which means you re out of luck if a card is lost or stolen (although the same is true for cash).
And the free gift card trend adds a new wrinkle: Those cards fall outside the scope of the CARD Act rules and often include restrictions on when and on what the balance can be used. Retailers are using that loophole to drive traffic during the slow post-holiday period, says Judd Lillestrand, the founder of gift-card rating site ScripSmart. Borders (BGP),
But should it be enough to draw you into the post-holiday, clearance-shopping masses? Maybe not. Look for the handful of businesses offering a discount or extra gift card without strict rules and in lieu of a bonus, Lillestrand says. B.R. Guest Restaurants, for example, is offering a 20% discount on cards purchased online before Dec. 10, and Chili s is currently deducting 10% on online card purchases of $100 or more. Even Borders offered an extra $10 gift card usable at any time with a $50 gift card purchase earlier in the season.
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