First Data released its First Half Gift Card Payments Report, which, not surprisingly reports on gift card sales for the first half of 2010.
At quick-service restaurants, the dollar value of gift cards jumped 14.0 percent and the number of gift cards sold rose 12.4 percent in the first six months of 2010, compared with the same period last year. The average gift card amount at quick-service restaurants increased 1.4 percent to $13.45, First Data found.
Gift card reloads grew significantly at quick-service restaurants, according to the company’s study. The dollar value of reloads rose 47 percent at quick-service concepts, compared with an increase of 25 percent across all merchants.
At casual-dining restaurants, the dollar value of the gift cards sold rose 4.7 percent and the number of gift cards sold increased 6.1 percent. However, the average gift card amount slipped 1.2 percent to $28.54.
The dollar value of all gift cards sold in the first half of the year, including at retailers, increased 4.6 percent, while the number of gift cards sold rose 2.7 percent, First Data found. The average gift card at amount at all merchants increased 1.9 percent to $33.73.
It looks like the gift card industry finally has some good news. Although this is a far cry from the 15% year over year growth the industry saw prior to the recession, it builds on a strong 2009 Holiday season for gift cards.
According to this article in the Los Angeles Times, about 8-10% of small businesses today offer gift cards, up from 2% two years ago. The costs of setting up to offer gift cards can be as low as $800 plus a small monthly fee. Many small business owners report selling many more gift cards than the paper gift certificates they previously offered.
It is always interesting to compare the perspective of industry trade groups with those of consumers, consumer advocates, and legislators. Take for instance this article, which talks about the new gift card rules and their effect on the prepaid card industry. The article quotes the Network Branded Prepaid Card Association.
By the NBPCA‘s estimate, more than 90 percent of prepaid gift cards are drained of funds within a month after they are purchased.
Really? How then can breakage exist at a level of 10% of the face value of these cards? This also goes against a common sense experience of prepaid gift cards, which is that it is VERY VERY HARD to completely use them up, due to the fact that so few merchants understand how to do a split tender transaction or have the ability to determine the remaining balance on a card.
I am always suspicious about survey results when a survey is performed by an industry group. But the recent Graduation Consumer Intentions and Actions survey done by the National Retail Federation has me scratching my head because it carries a less favorable spin.
According to the survey, almost 60% of people who will give a graduate a gift will opt to give cash, and less than 30 percent will opt to give a gift card. This year cash giving looks to be higher and gift card giving slightly lower. The survey results also frames this as consumers being more practical.
Google trends is great for tracking the frequency of search terms over time. Reports from industry analists put gift card sales down only moderately (5%) for the last two holiday seasons, but searching Google Trends for “gift cards” gives us a different picture, with traffic declining what appears to be about 30-40% from the peak on 2007:
The search term “visa gift card” seems to have suffered even worse:
The concept of selling unwanted gift cards however, has gone from non-existent in 2006 and continues to grow:
www.giftcardconverter.co.uk is the first UK focused gift card site I’ve seen. An interesting tidbit in the article about this site is the claim that up to 25% of gift cards in the UK are unspent. The site will buy cards, trade them, or customers can donate them to charity. Cards donated to charity do not incur commissions, something we have yet to see from similar US based sites that provide the ability to donate to charities.
According to this obvious PR-based article, prepaid debit and gift cards are already a huge hit for online purchases ($12 billion for prepaid and $2 billion for gift cards in 2009) and are set to explode to $38 billion for prepaids and $6 billion for gift cards by 2014, representing almost 10% of online sales.
What is obviously missing from this is the difficulty people often have in using these types of cards for online purchases. Having briefly run a service that cashes out open-loop gift cards, I can personally attest to the fact that these type of cards are all over the board as to how they behave (or misbehave) online, even as far as major differences between two cards issued from the same bank. From differing and sometimes totally random address verification handling to holds placed on funds after a failed authorization (because of AVS randomness) sometimes for weeks, these cards are hell to try and use online. In a store, all you have to do is swipe the card, no verification required. Online, you sometimes have to know precisely what address (if any) the card is registered to, which could be none, the gift givers address, or your own if you registered it, and other times the card doesn’t care about addresses. Some cards done care about address verification until you register them. Some cards just randomly stop working for no reason and you can’t get a hold of a real person to figure out WTF.
The bottom line is that easily over 50% of online transaction based on gift cards seem to fail, versus about 5% for traditional credit cards.
There is some speculation that the use of gift cards may have been a reason behind January’s modest sales growth over 2009. (article) That means people are smarter and are using up their cards faster.
At least in the UK, open-loop cards apparently grew by 70% in the 4th quarter as compared to the same quarter in 2008, while closed-loop gift cards were up only moderately at 2.8%.
According to a recent article, PlasticJungle (a gift card trading site) claims that there are $30 Billion worth of unredeemed gift card in consumers hands.
Gift card issuers like to claim that gift cards are the most popular gift. Cashstar, a company that manages digital gift card networks for retailers, recently shared some trends that point out that gift cards may be popular, but they are most often the gift of LAST resort, not first choice. My interpretation – people often buy gift cards when they don’t have time to get another gift or just plain forgot to get a gift.
To keep abreast of new information related to gift cards one of the tools I use is Google Alerts which monitors news articles and blog postings for keywords. The last month or two, a majority of the articles I have come across have been negative towards gift cards in one way or another, either related to gift card sales going down, the “pitfalls” of gift cards – the fees, expiration dates, and bankruptcies.
Is it possible this represents a new trend in gift cards that is unrelated to the recessionary decline in general? It isn’t like there hasn’t been ample information about the negatives of gift cards, and yet consumers have shown little regard for this. Is the amount of information now being put in consumers faces enough to sour them on gift cards. This will be interesting to watch.
The latest Tower Group report on gift card sales has some interesting numbers of open-loop vs. closed-loop gift cards. According to their research, open-loop will be half of closed-loop for 2009, at $29 billion and $58 billion respectively. I had thought open-loop gift cards were nearing about the same sales as closed-loop.
In a two-part interview (part one, part two), a spokesperson from the Blackhawk Network, a division of Safeway that operates the Gift Card Mall service found in Safeway and other locations, has some interesting prognostications for gift cards this holiday season. Going along with other industry insiders, they predict growing sales for gift cards, whereas every independent survey (such as from The Tower Group and Archstone Consulting) predicts declining gift card sales. They also are touting new consumer behavior, such as people purchasing store gift cards over time to save up for a big purchase, instead of just putting money in the bank.
I think they are drinking to much of the company Kool-aid. These predictions sound more like fantasies. In difficult economic times, people tend to make smarter choices, and not buying gift cards, especially the kind with high fees, is among those smarter choices. There is just too much information being presented in the mainstream media for customers to ignore the fees any more. And worries about the health of retailers will surely keep consumers from treating a retailer like a bank for fear of losing all if the business goes into bankruptcy.
The Tower Group expects gift card sales to drop 7% from last years sales, which are down from 2008 levels. Even the National Retail Federation reports that gift card spending will drop this holiday season. Most commonly cited reason: gift cards are too impersonal.
And the Wall Street Journal and Time Magazine (among many others) feature articles (WSJ, Time) that advocate giving cash instead of gift cards. Have gift cards peaked? Are consumes getting smarter?
Strangely though, Canadians seem to be giving more gift cards than ever.
I’ve come across two surveys recently that predict different results for gift card spending this holiday season.
The first survey, from Archstone Consulting Group predicts flat sales to sales dropping by 5%, which seems like a logical conclusion given the state of the economy. This is similar to what they predicted last year and they were right.
The second survey, from Givex, predicts that gift card spending will rise.
So who is right? Given that Givex is in the gift card businesss (they supply the infrastructure for gift cards), their results sound more like a press release. Archstone is a consulting company that serves many industries and seems like a less biased entity.
I suspect the Archstone’s predictions are more likely.
As these survey results seem to indicate, consumers don’t really understand the true costs or fees associated with open-loop (Visa/MasterCard) gift cards. Probably the most understated result is the question where 17 percent said they had trouble spending the remaining amount on their card because a merchant refused to split the transaction across multiple payment types. What is missing is the fact that the other 83 percent of people never had a problem BECAUSE THEY DIDN’T EVEN KNOW YOU COULD DO THIS! :)
Here is an interesting article that look at when a gift card expires to how likely we are to spend it vs let it go to waste.
According to a recent report, the holiday outlook for gift cards spending is flat to down 5%. At $24 billion for just the holiday season, that is still a lot. The good news is that people are focusing more on using gift cards for essentials; hopefully this means that they are also keeping better track of their gift cards and remembering to spend them. It would be great of gift card breakage (what doesn’t get spend by consumers each year and issuers get to keep eventually – around 10% of the face value) goes down significantly.
Google Trends is a nifty tool that allows you to see the relatve frequency with which a search term appears historically in Google searches. Google Trends shows this frequency map for the term “gift cards”
This pretty much tells us what we alrady know, gift cards are HUGELY a holiday phenomonon and have been steadily growing. Notice however that over the last holiday season, less overall searches for gift cards. The three other smaller spikes that have appears in the last four years look suspiciously like Valentines day, Mother’s Day, and Father’s day.