By Jeremy M. Simon
If you're looking for the perfect gift this holiday season, consider the practicality of gift cards.
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Amid rising unemployment levels and broader financial challenges, holiday shoppers are expected to become more budget-conscious and practical, experts say. According to research from the Hartman Group, although consumers plan to spend a net 8 percent less on gift cards over the next 12 months compared to the prior year, shoppers are expected to focus on more practical presents.
Although past holiday seasons included gift cards that tended toward the indulgent, analysts predict that categories such as electronics and clothing stores will likely suffer this year. This year, many shoppers will be spending lower dollar amounts on gift cards that can be redeemed for necessities such as groceries, gas and pharmaceuticals. "At the end of the day, one of the best gifts you can give somebody in the down economy is savings on their bills," says Duncan Douglass, a gift-card law specialist with Alston & Bird.
For those shoppers planning to give prepaid cards this holiday season, consider the following golden rules of practical gift card giving.
| 11 golden rules for practical gift card giving | |
|---|---|
| 1. Reduce the cost of gifting | 7. Give the gift of health |
| 2. Let gift card dollars go further | 8. Purchase gift-card combo packs |
| 3. Give people what they really need | 9. Pitch in for group gifting |
| 4. Don't limit where gift cards can be spent | 10. Get something for yourself |
| 5. Beware of fees and expiration dates | 11. Be honest |
| 6. Go online | |
1. Reduce the cost of gifting. The relatively straightforward cost of gift cards makes it easy to stretch your gift-giving budget. "Gift cards are still a very practical gift for the recipient as well as the gift giver," says Tim Henderson, senior director with consumer research and advisory firm Iconoculture in Minneapolis. Henderson notes that consumers who might have previously spent $100 on a single gift card can instead buy a pair of $50 gift cards for two separate people on their holiday shopping lists. The flexibility, choice and budgeting that gift cards allow have "always been there but are more important in today's economy," says Teri Llach, chief marketing officer with Blackhawk Network, a provider of third-party prepaid cards.
2. Let gift cards dollars go further. Choosing prepaid cards from discounters and big-box stores lets gift recipients buy more merchandise. Iconoculture's Henderson says that such stores offer the chance to select merchandise from a variety of categories, including name brand products at a discount. Experts say that flexibility will benefit discount retailers this holiday season. "I think you'll see the Kohl's, the Wal-Marts, the Targets will have a fairly good year" for gift card sales, says Jake Jacobs, executive vice president of sales and marketing with ABnote North America in Boston. Gift card distributors agree. Although revenues are down from prior years, Anne Gilman, vice president with stored value card marketing company Incomm, points to continued strong gift card sales in pharmacy and big-box stores, as well as increased sales at discount retailers such as Dollar General. "That is clearly where consumers are shopping. And those are the retailers whose business is experiencing strong growth," Gilman says.
3. Give people cards that pull "double duty." While practicality remains key, it's not the only reason to give gift cards.Useful gifts can also have an emotional value by offering a "tangible representation of intangible emotion," says Henderson. Ideally, gift cards can pull "double duty," offering the chance to be both functional and stylish. Some gift cards are even collectible. That combination allows a little piece of plastic to carry a lot of weight.
4. Don't limit where gift cards can be spent. While the large selection of items at discount retailers allows for greater choice, open-loop gift cards provide even greater options. Such open-loop gift cards -- which are typically issued by a bank -- may bear the American Express, Discover, Visa or MasterCard logo and are accepted at any store that honors those credit cards. Open-loop gift cards may also allow for redemption anywhere in a mall. Some of the decision-making involved in buying open-loop versus closed-loop cards may come down to how well you know the recipients -- and what stores they prefer. "The people you don't know that well, you tend to buy the mall [gift card], and the people you do know you tend to buy a specific store" gift card, says Anthony L. Liuzzo, a business and economics professor at Wilkes University in Wilkes-Barre, Pa..
5. Beware of fees and expiration dates. Although open-loop cards provide greater freedom, it may come at a cost. To avoid having gift card dollars eaten away by fees and expiration dates, consider your options. In the end, some shoppers may decide to bypass cards that include expiration dates and fees. With all the recent scrutiny of the card industry, the negative press around fees and expiration dates on branded gift cards has "created some additional consumer trepidation around those products," Douglass says.
6. Go online. To save yourself time while increasing your gift card options, try the Internet. Store racks can hold only a certain number of gift cards, but the Web offers a much greater variety. Sites such as Blackhawk's GiftCardMall.com let the buyer choose from a wider variety of card options than at store locations. After all, "you can only get so many pegs in a grocery store," says Blackhawk's Llach.
7. Give the gift of health. You can't get any more practical than helping friends and loved ones stay healthy. The appearance of health care gift cards "really highlights that trend toward using gift cards for the purchase of necessities," says Atlanta-based attorney Douglass. Issuers of prepaid health care discount cards include health care solutions provider WiredBenefits, Blue Cross and Blue Shield of Florida (available at Winn Dixie and CVS stores) and discount medical plan organization OptumHealth. Henderson, for one, is a fan of these types of products."I like that idea because it takes gift cards in another direction," making it about more than just buying a product, he says. "Health is something that is very near and dear to consumers."
8. Purchase gift card combo packs. Cross off several names from your holiday list at once with gift card combo packs. Displays may include multipacks and combo packs offering gift card bundles from more than one retailer -- pairing together a restaurant chain card and a movie theatre chain card, for instance. "Instead of one $50 card, you might find three $15 cards in one pack, which is perfect for stocking stuffers, teachers' gifts, coach's gifts," says Incomm's Gilman. "Around the holidays, people are always looking for lower cost gift items."
9. Pitch in for group gifting. Retailers are helping prepaid card shoppers pool their resources. Best Buy's reloadable Pitch In card, for example, allows the recipient to create an online account. Friends and family members can contribute to that account, with gift amounts starting at $5. As an example of how such a group effort might work, "I'll chip in $100, and someone else will contribute $50, etc.," Henderson says. Those funds can then be redeemed for items on the recipient's wish list.
10. Get something for yourself. Just because you're giving gifts doesn't mean you can't also treat yourself. Some stores may provide a free item with the purchase of a gift card -- or a free gift card with your purchase -- so be on the lookout for such opportunities. In the near future, Gilman says consumers can expect some yet-to-be announced value opportunities around November and December that may involve customer loyalty programs. She says an example would be offering a CVS ExtraCare program cardholder the opportunity to earn extra in-store credits by purchasing a specific partner's card at the pharmacy chain. Gilman says the upcoming reward programs are likely to relate to healthcare. "We do see some programs launching around the holiday that are health-related and are more of a self-purchase than gift," she says.
11. Be honest. No one of your list should be upset -- or surprised -- if you need to reduce your gift budget this year. Unemployment is rising. Consumers have already been charging less and reducing their debt -- which doesn't bode well for gift card sales. "Gift cards are almost all credit card purchases. That's a problem," says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. And it's not like this is the first holiday to see tighter holiday budgets in this economy. Henderson cited an April survey from the National Retail Federation indicated that consumers planned to spend less on Mother's Day. Henderson says that signals just how committed shoppers are to frugality, and he expects the winter holidays to be no different. "When a consumer indicates they are going to be cutting back on Mom, I think that consumer is serious about cutting back," he says.
All those factors mean shoppers and stores will be giving added thought to gift cards. "Coming out of the recession, you have a more responsible consumer, and retailers and brands that are going to be more creative in reaching out to consumers," Henderson says.
