As retailers brace for a grim holiday season, they have a vested interest in selling the cards, which account for billions in annual sales. Sales of gift cards are expected to slow to $24.9 billion this season from $26.3 billion last year, according to the National Retail Federation. Many major retailers, discussing their third-quarter earnings, have already predicted a rough first quarter.
The hope is that the bells and whistles will prevent a bigger slump as consumers not only pinch pennies but show signs that they're less interested in gift cards.
More than cards
Target is marketing five "Wow! Cards" ranging from one that is a jukebox that plays holiday tunes to another that is a 1.2 megapixel camera. Best Buy, which has seen huge growth in gift cards over the last three years, has introduced a gift card that is also a speaker and compatible with iPods and MP3 players. In recent years, retailers have rolled out increasingly detailed card designs, as well as personalization services, but the latest crop is among the most cutting-edge the industry has seen.
Ellen Davis, VP at the National Retail Federation, said creativity in the gift-card arena is key to luring shoppers, who might think they are impersonal gifts.
For years gift-card sales have grown steadily, from $108 per shopper in 2004 to $156 per shopper last year, according to NRF. This year, sales are projected to drop 6% to $147 per shopper. The reason for the decline is varied, said Ms. Davis. Given the aggressive promotions in the marketplace, some consumers are gravitating toward sale items as a way to stretch their holiday budgets, while others are looking for more personal gifts. Dismal news reports say some shoppers are concerned that retailers will go bankrupt before the gift cards are able to be redeemed.
"It's very possible that all the talk about gift cards not being a good option because retailers might go out of business could create a self-fulfilling prophecy," said Ms. Davis. "It's certainly a legitimate concern, [but] most often, when a retailer files for bankruptcy, a judge will rule that gift cards are still good."
Given the importance of gift cards -- historically they have encouraged shopping during the slow January and February time period -- retailers are also turning to card-centric promotions. For example, Target and Wal-Mart both recently offered free gift cards with the purchase of a Playstation 3.
"Instead of marking down 20%, retailers are offering a gift card, which ensures that [consumers] come back," explained Ms. Davis. "And, typically, when people redeem the card, they spend a little bit more."
Big for Best Buy
"Target prides itself on being innovative and giving our guests something they don't expect with our gift cards," said Courtney Foster, a Target spokeswoman. "We definitely try to up our creativity and uniqueness every year. ... [Gift cards] have sold really well in the past, and we expect the same this holiday season."
Gift cards have also become big business for Best Buy, which has seen total dollars spent on the cards increase 60% over the last three years. Innovative gift-card designs are key to driving those purchases, said Best Buy spokesman Brian Lucas, leading the retailer to introduce 13 holiday designs this year.