Gift cards, the most mundane present you can buy someone, are giving U.S. retailers a much-needed cash infusion as they close out a rough year.
Americans are on course to buy more of them than ever before, with gift-card spending this holiday expected to rise 19% compared to last year, according to payment service Blackhawk Network. More than half of American shoppers say they’ll buy more cards this season than in previous years, with shoppers planning to purchase 10 cards on average—twice as many as last year. And with billions of dollars of gift cards left unredeemed annually, that boom in sales could translate to essentially free money for retailers in the midst of their most crucial quarter of the year.
The rise in sales comes as shoppers are shifting money away from travel and experiences during the coronavirus pandemic—plus a gift card travels easily through the mail during a socially distant holiday. A spike in sales bodes well for retailers, especially “nonessential” ones like Macy’s and Nordstrom that are still trying to claw back the sales they lost while their doors were shuttered earlier this year.
“I would expect this to be a very strong gift-card year,” said Steve Sadove, senior adviser for Mastercard and the former chief executive of Saks Inc. He said the shoppers who can afford it are willing to shell out cash. “What you’re seeing is resiliency in terms of the consumers out there.”
Gift cards provide many retailers immediate cash flow, a welcome boost during a disastrous year for the mall-based retail sector. Beyond the cash injection, gift cards also offer retailers useful customer data and can ultimately increase the total amount a customer spends with them, potentially giving the struggling sector a jumpstart as 2021 begins.
Each year, as much as $3 billion in cards go unused, languishing in wallets past the expiration date and never to be cashed in, according to a CBS News analysis of Mercator Advisory Group data. That’s particularly relevant at a time where dozens of retailers have gone bankrupt. Those that liquidated, such as Barneys New York, set redemption deadlines for outstanding cards. Miss the date, and that card becomes worthless to the customer. Mercator didn’t reply to a request for comment.
Even when customers use them, there’s often either a small balance left on gift cards that’s never redeemed, or they spend additional cash beyond the card balance to get the product they want. That extra spending will help offset this year’s lost impulse sales—those last-second purchases shoppers make while perusing racks and shelves in person that don’t materialize when filling an online cart.
“People rarely stick to the gift card limit,” said Gabriella Santaniello, founder of retail research firm A-Line Partners. “It’s beneficial in that way.”
Gift cards are a tried-and-true tactic that dates back to the ’90s, when Blockbuster Video became the first shop to roll out the method nationwide. They’re now sold by everyone from restaurants to designer fashion boutiques. Even sports-betting company DraftKings introduced a retail gift card this year, which it calls an industry first.
Still, not every consumer company will see gift-card growth. Starbucks warned that holiday gift card sales are being hit as fewer customers come into the cafes, even though digital sales are holding up.
“There will be some impact to our gift card sales this holiday season, which will likely have some knock-on effect to our fiscal second quarter,” Patrick Grismer, chief financial officer, said at the Wolfe Research Consumer Access Day earlier this month. “But I think it’s early to say whether that will be a material impact.”
