Stores hope gift cards give post-Christmas lift

NEW YORK (AP) — As merchants look to this weekend and the rest of the Christmas aftermath, they're counting on droves of gift card-toting customers to return to malls.

But those numbers may be smaller as the industry braces for what some analysts believe will be a second consecutive holiday season of declines in gift card sales.

The final word on holiday gift card sales is not out. Mall of America is seeing gift cards flat through this week compared with a year ago. Mall operator Taubman Centers cited lukewarm sales heading into the final week before Christmas, but saw a rebound in recent days as threadbare shelves have left last-minute shoppers no other choice.

Overall, the recession has stolen gift cards's steam. Reduced consumer spending has extended to gift cards, but frugal shoppers are also turning to buying discounted gifts so they can stretch their budgets. Also troubling is that recipients will likely be stingy when they redeem them, focusing only on deeply discounted items, as they did last year.

That poses challenges for the critical week after Christmas and for 2010 as consumers typically spend more than the card's value. Gift card sales also are a key way for stores to drive traffic in the first quarter, traditionally a quiet time for the industry.

This holiday season, merchants were pulling out all the stops to put them in the hands of consumers. Catalog retailer L.L. Bean, for example, offered a free $10 gift card with purchases of $25 or more; last year, shoppers had to spend $50.

But Cindee Weiss, 41, who works in magazine publishing, hasn't bitten. In Christmas seasons past, she would spend a total of $100 on gift cards at Gap or Anthropologie for four friends, but this year, she's baking cookies and brownies for them.

“In this economy, I have to be a little more aware,” said the Manhattan resident, citing an uncertain job market. She also noted that in tough times, she wanted to do something personal.

C. Britt Beemer, chairman of America's Research Group, predicts another holiday season of weak gift card sales would be “devastating for retailers.”

Another problem is that more shoppers are giving cash this season, because they couldn't get to the stores or they also want to be even more practical, Beemer said. Typically, about 75 percent of those dollars don't go to stores, but toward paying bills or to restaurants, he said.

“Gift cards' popularity hasn't died, but the recession has changed the way that people give gifts,” said Craig R. Johnson, president of Customer Growth Partners, a retail consultancy.

In fact, according to a consumer survey conducted for the National Retail Federation, gift cards still remain the most requested holiday item, but several industry surveys have found that the average person plans to spend less on them than last year.

Best Buy reported that gift card sales rose 40 percent in November, following a big drop last year as consumers cut their spending as the financial crisis escalated.

But overall, Brian Riley, research director at TowerGroup, a research company, remains bearish on the category, though he believes business will rebound when the economy picks up again.

Riley expects overall gift card sales will fall 4.4 percent this year to $87 billion from $91 billion — with a 3 percent increase in general purpose card sales and a 7 percent decline in store card spending. That follows a bigger 9 percent drop in 2008.

Michael P. Niemira, chief economist at the International Council of Shopping Centers, says he's not sure how fast shoppers will redeem gift cards because there won't be mounds of holiday leftovers as stores slashed inventories.

Many savvy retailers are making sure they have fresh merchandise when shoppers return Saturday. Stores also say they're aiming to capitalize on a quirk of the calendar — a full weekend after Christmas.

Kathleen Waugh, spokeswoman at Toys R Us, noted that the toy merchant shipped more new merchandise this week compared to the same time last year to take advantage. Wal-Mart Stores Inc. is extending holiday deals such as a selection of top Blu-ray movies for under $20. It's also offering a $50 gift card with an Xbox 360 purchase.

“Shoppers expect to find new deals after Christmas, but we wanted to make this weekend especially exciting,” said company spokeswoman Melissa O'Brien.

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