By Tom Ryan
For many consumers, this holiday season's most popular present was the gift card. The National Retail Federation predicted gift-card purchases totaled $26 billion in the U.S. this holiday season, up from $24.8 billion last year and $18.5 billion in 2005. The average consumer was expected to spend nearly $123 on gift cards, according to the NRF.
According to a survey by NPD Group, 61 percent of consumers planned to give the cards this year compared with 32 percent a year ago.
The gains come as retailers stepped up the marketing of gift cards this year, touting them as ideal for hard-to-please recipients and cheaper to mail than bulkier gifts. Numerous retailers, such as Starbucks and Costco, sell their own cards, and supermarket chains sell a variety of cards that fit the interests and demographics of their communities. Cards are organized by categories like fashion, travel, restaurants and books, movies and music.
"It has gotten to be so convenient. It's the gift of choice," Marshal Cohen, chief industry analyst for NPD, told the Seattle Post Intelligencer. "The art of gift-giving has changed. ... (Gift cards) used to be something that was too impersonal."
Also helping the trend are more attractive cards. Target and PetSmart sell cards with images that move, including "naughty and nice" meters and dogs making snow angels. Starbucks launched personalized gift cards with each depicting the favorite drink of the recipient.
For stores, not only are the cards easy to sell compared with items like clothing and jewelry but help reduce the number of returns. Consumers also typically spend more than the amount allotted on the card.
Cards also extend the holiday season. The International Council of Shopping Centers said that 29 percent of the cards will be used the week after Christmas and 64.5 percent during January. Because the card dollars aren't counted as revenue until the cards are used, they enhance January's bottom line as well.
But with increased popularity come increased complaints. The Consumers' Association of Canada claims up to 20 percent of gift cards are never used. Many contain restrictions, including administrative fees and limits on cash back, and have quick expiration dates. And many consumers still believe their convenience doesn't jive with the Christmas spirit.
"I hate it," Becky Walters, from Boulder City, NV., told The Arizona Republic while reluctantly buying gift cards at a mall. "I'd rather be wrapping like a maniac."
Discussion Questions: How do you think gift cards are changing the Holiday season? Given their growing popularity, how should retailers reevaluate their merchandising, promotional and inventory positions around the holiday season?