By Brian Kilcourse, Managing Partner
11/13/2007
Last week I got a call from a company called SVM about a suspicious looking gift card sale. I had never heard of SVM, and so got onto Google and looked them up, and discovered that they are a gift card processor dealing mostly (but not exclusively) with gasoline gift cards. I had never even thought of buying a gasoline gift card, so my curiosity was up. I returned the call, when the service agent told me that a gas gift card had been purchased via the Internet by someone with a southern Oregon address, asked it to be sent to an address in eastern Washington, using a credit card with my billing address near San Francisco. Obviously, a red flag went up in the SVM system. The transaction turned out to be completely innocuous (my daughter in Oregon was buying a gift card for a friend in Washington), but it got me to thinking. While the notion of buying a gasoline gift card is completely foreign to me, it is a fait accompli as far as my college-age daughter is concerned. So, how big is the gift card business, and how will affect the selling season?
Subsequently, I spoke with Ellen Davis, Senior Director of Strategic Communications at the National Retail Federation (NRF) about the trade association’s expectations for the impact of gift cards on this 4th QTR selling season. NRF is in the process of finalizing the results of a new study on the impact of gift cards, but Ellen shared some startling insights. First and foremost, gift cards have moved up from being the #3 consumer gift preference to being #1, especially for clothing and books. Last year, gift card sales amounted to $25 Billion in the holiday season alone, a stunning 147% increase from $17 billion the year before. The steep growth trajectory is due in great part to the rise of the Internet as a favored channel for seasonal gift giving.
The issue raises many sweeping questions. How will gift card sales impact 4th QTR revenue projections? According to Ellen, about 20% of all gift cards are redeemed within the first week of the holiday. The other 80% will be spread over January and into February – at this time, the pattern isn’t clear. But what will it mean to retailers to realize this revenue in January? January has always been a clean-up month; old inventory is marked down and returns are processed. The good news has always been that these margin-killers get absorbed in the busiest quarter of the year. Now the good news might be that January is actually a good month for merchants. But what will happen to all that old inventory that didn’t sell in December?
Retailers are starting to get wise to what my college-age daughter and her friends do with gift cards. Those college-age savvy shoppers wait until January, then maximize the value of the gift card by buying marked down merchandise. In response to this, many retailers are doing their resets much earlier in January, to win full markup sales from gift card buyers. But what does that do to the markdown cycle? Does it have to start earlier? Is that why we’re seeing deep holiday discounts in early November?
Finally, retailers have long “balanced” the upswing in their 4th QTR labor-to-sales ratios by letting go of seasonal help immediately after New Year ’s Day. If the gift card carrying hordes descend upon the stores in January, what does that do to the in-store labor?
It’s amazing the train of thought a single phone call can provoke. What do you think?
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