November 08, 2004

Christmas, Gift Cards and Retailers

Gift cards: Pieces of plastic spread joy, but not all are merry

Monday, November 08, 2004

By Teresa F. Lindeman, Pittsburgh Post-Gazette

With more than half of the gift-receiving public hoping for a gift card this holiday season, the little plastic presents are no longer seem like a lame solution for a difficult-to-please cousin. Now retailers are concentrating on the pizzazz factor.

Department store J.C. Penney this year has introduced plush cardholders ($1.99 with gift card of $10 or more) so givers can tuck their offerings inside a stuffed bear or perhaps a Santa., an online purveyor of cards since 1997, will launch a service in the next few weeks to help customers get more bang from their expenditure of bucks. Perhaps that restaurant gift card would look cute in an empty Chinese takeout box with ribbons?

"People love the whole aspect of opening a present," said Kathy Gersch, executive vice president of marketing and merchandising.

Gift cards -- once merely the back-office staff's high-tech replacement for the clunky paper gift certificate -- have been discovered by the marketing team.

The first big assignment was an image fix from the lazy person's solution to a coveted item. That seems to have been accomplished. The National Retail Federation's latest research indicates that more than 50 percent of the receiving public would like to get a gift card this year, up almost 10 percent from two years ago.

While it may be boring to open a flat envelope, both retailers and consumers have warmed to the advantages of cards. Stores find recipients usually spend more then they have been given. For shoppers, the money on the card is a pot of gold that makes it easier to buy something nicer than usual.

Gift cards also bring many people back into stores during the slow months of January and February. Mall owner Simon Property Group, which rolled out its own gift card nationally in 2003, saw 60 percent of the balances spent within 60 days last year.

Simon, which has three Allegheny County malls, expects to sell $400 million worth of gift cards this year, compared with $340 million last year. Nationally, the holiday gift card industry could reach $22 billion this year, a small, but significant portion of the $220 billion that the retail federation is projecting for holiday sales.

The original gift cards looked like something the accountants might have come up with -- one color, maybe a logo.

But in a recent customer survey by Stored Value Systems, a gift card supplier, respondents said the biggest drawback to cards was that they were impersonal. Few people had received them in anything more personal than a gift card. More than half of those surveyed said the design on the card was important and should relate to the occasion.

Penney's this year has rolled out four new holiday card images and added a Spanish language card. Several national retailers created two-part gift cards for the back-to-school season, allowing students at college to buy while their parents back home reloaded the account.

Even plastic can be improved upon. Target has sold a mood gift card that changed color when held. Hardware retailer Lowe's managed a card made of wood ("Don't ask us how we did it," said Bob Skiba, general manager of gift card supplier Stored Value Systems, which worked on the project.)

"It's not just what shade of black do you want anymore," said Skiba, who was on a team that brought cards in 1997 to The Gap clothing chain.'s top seller is a one-size-fits-all version that can be split among 200 or more participating merchants. The online shop also promotes itself as a one-stop place to pick up cards from a number of companies ranging from Borders Books and Music to Merry Maids to Zales. Millions of cards are stockpiled in a warehouse in Omaha, Neb., ready for shipment.

Gift card kiosks also are showing up, first at Safeway grocery stores and more recently at some Giant Eagle locations in the form of stands holding a range of restaurant and retailer cards.

Marketers and accountants still have issues to work through. Financial rules demand that money received for gift cards not be counted as revenue until that money is actually spent.

American Eagle Outfitters listed $3.3 million in unredeemed gift cards at the close of fiscal year 1997. At the end of the most recent fiscal year on Jan. 31, 2004, the Marshall teen clothier reported more than $25 million in unused card value sitting on the books.

"It's an accounting nightmare," said Gersch, at

Bookkeeping concerns led to expiration dates and fee systems aimed at limiting the length of time people could forget their cards stashed in the back of the sock drawer. Simon, for example, begins charging a $2.50 monthly fee in the seventh month, eventually clearing out the account.

Upset consumers and a wave of state laws seeking to restrict such requirements have focused attention on the issue and persuaded a number of retailers to change their policies. Penney dropped its service fees a year ago. In July, eliminated the 13-month expiration date on its all-in-one product.

Gersch isn't too concerned about the change. The cards have been around long enough that accountants can better predict how many people will hang on to them.

The National Retail Federation recommends consumers check into fees and restrictions before buying a gift card, since they vary between issuers.

As for the problem of putting off sales into the months after Christmas -- and perhaps exchanging full-price sales for post-holiday discounted merchandise -- there seems to be little sympathy. Skiba said stretching the shopping season should be an opportunity for stores to convert people into regular customers.


Posted by Craig at November 8, 2004 04:14 PM