Gift Cards and the Everlasting Holiday Season
Cash is crass, but gift cards just keep on giving

It used to be a common perception that giving cash in lieu of actual wrapped gifts during the holidays was, to put it bluntly, a little crass. Then along came gift cards, and those time-worn perceptions melted away. The relative ease of giving – and shopping – that attracts growing numbers of consumers has turned gift cards into the latest gift-giving phenomenon for the holidays and throughout the year.

During the 2005 holiday shopping season consumers received more than $11.8 billion in gift cards, according to the latest data compiled by The NPD Group. Gift cards are so hot that 47 percent of teens and adults in the U.S. reported receiving at least one gift card over the holidays.

“The implications for retailers and financial analysts are far-reaching,” said NPD Group President, Retail Business Group, Bill Lucas. “As gift cards become more and more a part of the holidays, retailers will need to review an extended timeframe to evaluate just how lucrative the holidays truly were.”

Holiday cheer – throughout the year

According to consumer surveys NPD conducted in January, over half of all holiday gift cards from a specific retailer were fully redeemed (meaning the entire face value was spent) before the end of January 2006. That leaves many gift cards in the hands of buyers waiting for new products to arrive in stores later this year. The cards also may be squirreled away for a special purchase when the shopping environment is less hectic. And all of that leaves substantial revenue floating on retailers’ balance sheets.

“Most retailers plan their holiday selling season to include a significant amount of gift card redemption in January,” Lucas said. “But the new reality is that a sizeable percentage of the gift cards given during the holidays can still affect the balance sheet not only in January and February, but also much later in the year.”

Among the millions of specific store and catalog gift cards fully redeemed by the end of January 2006, 59% were redeemed on purchases that exceeded the value of the gift card itself. In addition, the average "lift" for these cards -- the amount spent over the issued face value of the gift card -- was $26. These combined factors represent a significant opportunity in additional revenue for retailers, over and above the gift cards' actual value.

Banking on early redeemers? Not so fast . . .

“Early redeemers” – those spending the entire value of their card (and sometimes more) before January 31, 2006 – tended to report buying clothing and DVDs/videos with their gift cards. They were most likely to have redeemed cards from grocery stores and mass merchants. The merchant cards consumers chose not to redeem for at least one month after the holiday season included cards purchased in the home improvement, book store and beauty specialty channels.

Targeting the gift-card givers and recipients

While many consumers have hopped on the gift-card-giving bandwagon, most gift cards are actually given by immediate family members. During the 2005 holidays, 70 percent of gift cards were given by adults who were in the recipient's immediate family. These gift card givers are more likely to be female and in the 55+ age segment.

“When marketing gift cards, retailers should keep in mind both the gift card buyers and the recipients,” Lucas said. “For greater marketing returns, advertising and promotional dollars need to be spent touting the value, ease and growing acceptance of giving gift cards – and requesting them – for the holidays and other special occasions throughout the year.”

To purchase this report – which includes information on 28 specific retailers – click here or contact Charlie Camaroto at 866-444-1411 or e-mail contactnpd@npd.com.

ALSO AVAILABLE: Gift card redemption data from a similar study conducted among Canadian consumers. Contact us at 1-866-444-1411 for details.