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Archive for Saturday, December 27, 2008

Thrifty bargain-hunters sink gift card sales

December 27, 2008

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— Gift cards, the convenient catchall of holiday giving, lost their luster this year.

Price-conscious shoppers became smart bargain-hunters, realizing they could give bigger and better gifts by taking advantage of unprecedented discounts rather than by spending a set amount on gift cards, which had been steadily gaining popularity over the past few years. Practically everything took a back seat to price.

Another big concern: whether retailers they got cards from would follow the many others who have filed for bankruptcy this year, jeopardizing the value of their gifts.

People focused on getting more “bang for their buck” rather than paying $75 or $100 for a gift card, said Kathy Grannis, a spokeswoman for the National Retail Federation trade group, calling 2008 “the year of the bargain hunter.”

Consumers figured out that for the $100 they would ordinarily spend, they could get far more merchandise than before. Or get something far more expensive that had been deeply discounted. And for those really watching their spending, they could give a $100 gift marked down to $25 and pocket the savings.

That behavior could be bad news for retailers well into the new year, since they don’t record gift cards as sales until they are actually redeemed. Fewer people redeeming the cards could also hurt future sales, since people usually spend more than the gift card total.

Store gift cards are expected to generate $61 billion in sales in the fourth quarter, down from $70 billion in 2007, said Brian Riley, senior analyst at research firm The Tower Group.

Consumers snapped up gift cards in prior years. Last December, market research firm NPD Group said about 61 percent of Americans bought at least one holiday gift card in 2007, up from 31 percent the year before and just 16 percent in 2005.

This year, though, many retailers and mall operators have seen weakness in gift card sales, including Best Buy Co., the nation’s largest consumer electronics chain. The company’s chief marketing officer, Barry Judge, said demand for gift cards was strong all year but slowed in November and December.

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