Retailers Turn to Novel Gift Cards
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Retailers are turning to new gift-card gimmicks as they try to lure shoppers into their all-too-empty stores and increase holiday sales to recession-scarred consumers.
Luxury retailer Neiman Marcus Group Inc. this year is giving free $50 cards to thousands of shoppers to "drive customers to our stores." Target Corp. will hand out cards worth $10 to shoppers who spend at least $100 before noon the day after Thanksgiving. Best Buy Co. allows multiple gift-givers to contribute money to a single card, to cover big-ticket items like flat-screen televisions.
Gift-card sales have long been highly profitable for retailers. Customers tend to buy full-priced goods and spend more than face value in stores. But this year, the cards are taking on an important new role: lure customers into stores without incurring the margin-busting discounts of last year. Some are adding special services or features to gift cards. Others are discounting the cards, knowing that some are never redeemed.
By turning the cards into promotions that attract shoppers before the holidays, stores are augmenting their longtime strategy of selling gift cards as a service to harried relatives and friends. In the past, the benefit to retailers was mostly to drive sales in the weeks after Christmas, when shoppers used the cards they had received as presents.
The new cards are responding to a drop-off in sales. During the 2008 holiday shopping season, gift-card sales dropped 5%, the first decrease after nearly a decade of strong growth, according to the 2009 Gift Card Trend Report from Archstone Consulting, a Connecticut-based management consulting firm.
This year, gift-card sales are expected to be flat at best compared with last year, or, at worst, down 5%. The average amount of a gift card is expected to fall about 12% to $46, according to Archstone.
Fees, restrictions and expiration dates on gift cards have tarnished their reputationsfor some gift-givers, said Dave Sievers , retail practice leader at Archstone. Pressure from consumer groups and pending legislation have helped changed certain practices that were unpopular with shoppers.
The recession helped dampen gift-card sales as shoppers preferred to buy items on sale. As a result, many retailers this year are adding incentives to gift cards that make them the equivalent of discount coupons while encouraging earlier shopping.
Target, the cheap-chic retailer, has created $25 cards that double as toys, including a cheese-patterned gift-card/remote control that kids can use to make a Santa mouse that comes with the card zoom around in a tiny shopping cart. Costco Wholesale Corp. is offering cards that function like manufacturers' discount coupons, letting shoppers buy $100 worth of a product for, say, $80.
Costco expanded a program offering discounted gift cards for assorted products, with a special emphasis on $100 gift cards for $80 to expensive restaurants, including Fleming's and Sullivan's steak houses.
As a much as 10% of the gift-card dollars bought each year are never used, according to TowerGroup , a financial-consulting firm. Retailers cannot book the sales of the cards as revenue until they are redeemed.
"If you go into our warehouses now, you'd probably find six pallets of these cards," said Costco Chief Financial Officer Richard Galanti . "The program has really evolved."
On a recent Costco shopping trip, Traci Calabrese , a mother and part-time development officer from Boston, spent $80 on $100 worth of cards for Keurig Inc., a manufacturer of single-cup coffee makers. She plans to give one of the cards, which are redeemable online for coffee supplies, to her sister for Christmas, and keep one for herself.
Retailers that give away cards to drive traffic to their stores hope shoppers will spend more than the face value of the free card. On average, gift card recipients spend 40% more than the value of the card, according to Dan Horne , a professor of marketing at Providence College who studies gift card trends.
Saks Inc. is using its cards as a shopping reward, giving away gift cards to people who buy contemporary clothing online. The retailer has upped the ante from a similar promotion last year, offering $100 gift cards for purchases of $450 or more, versus a $50 gift card last year. It is also lengthening redemption times by a month to Dec. 31.
Neiman Marcus, which has seen its sales slip, is offering a free $50 gift card to lure customers to an evening shopping event this weekend.
Rachel Cothran , a 27-year-old blogger in Washington, D.C., used her card to purchase a pair of Wolford tights for around $60. Ms. Cothran said she typically buys hosiery at discount stores and never would have thought to splurge on a luxury version — until the gift card.
"People want things to be free," she said. Ms. Cothran said she loves her purchase and is considering going back to the store to pick up another pair.
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