In the wake of HMV’s administration, the retailer has said that it will honor gift cards following the annual peak Christmas season. However, the issue has raised questions once again over the customer value of buying them at all.
The UK-based high street music and DVD retailer has been placed into the hands of administrators KPMG following its second collapse in six years. A decision faced by administrators in such a position is to consider whether to honor pre-paid gift cards, a situation more recently faced with the acquisition of House of Fraser by Sports Direct, which was not legally required to honor any previous transactions or debts following the takeover. This issue left customers confused as to whether they could still use their cards or not.
Buying a gift card in the current tumultuous retail climate may be seen as a gamble, however, it is still a marketing practice that is in growth with the global gift card market having been predicted to reach $750bn by 2026 according to ResearchAndMarkets.com.
One of the reasons found for the growth in gift cards came from corporate houses using them in recognition for employee contributions, while the rise of ecommerce sites such as Amazon, Alibaba, Flipkart and eBay have also buffeted growth.
“With the growing penetration of internet and smartphones, people are in a better position to access e-commerce portals than ever before, a factor complimenting the gift cards market growth. Moreover, the fact that giving cash as a gift is considered socially inappropriate is further complimenting the market growth for gift cards. Furthermore, as gift cards enable the recipient to purchase any product of his/her choice, therefore its adoption is increasing by the day,” the research stated.
Another element of growth has been society’s move away from directly gifting money.
These cards can also generate important data for retailers - which allows them to personalize the cards, gaining much-coveted intelligence on their customers, and being able to track what they buy as a result of using the cards too. These are being generated through online means such as mobile apps and emails, not just physical plastic forms that can be easily lost.
“Gift cards hold mass appeal and offer a seemingly endless range of options—physical, digital and mobile—giving brands and organizations new ways to engage with their audiences,” said Talbott Roche, chief executive officer and president, for branded reward and incentivization company Blackhawk Network following the release of its Holiday Shopping Preview. “As consumer gift card purchasing and usage preferences continue to evolve, there will be more opportunities for merchants to drive traffic, sales and loyalty with their own gift card programs. Businesses can prepare themselves by considering consumer insights and embracing the changes coming to our industry.”
According to financial services company First Data 2018 Consumer Insights Study, of more than 2,000 U.S. consumers, many respondents planned to spend over half their annual gifting budget on gift cards which it estimated would be close to $400 per gift card purchased annually. It also found that a third of the consumers surveyed spent more on a gift card than a traditional gift. 95% of those surveyed also revealed that they had redeemed a gift card within the last 12 months.
The verticals with the highest redemption rates were found to be in e-tail, entertainment or quick service restaurants.
Indeed, the discovery of the trend of using cards to overspend is supported by First Data research, which found that, on average, consumers would overspend on the original value of their gift cards by $59. The same study also claimed that 47% of respondents between the ages of 18-23 said they would rather have a gift card over a traditional gift.
“Our study shows that gift cards, or branded currency, are not only a potential growth engine for businesses, but are becoming the preferred gift for both purchasers and receivers alike,” said Dom Morea, senior vice president, head of gift solutions at First Data.
The use of gift cards as an employee and client incentivization is also on the rise, with the Incentive Research Foundation listing the top merchants for non-cash branded gift carding being coffee (74%), dining (60%) and online-only retailers (57%) among the most popular sectors.
So while the retail environment may seem to be a gamble to some, especially when questions surround the future of certain retail brands that may not even accept the credit as their responsibility should administration beckon, there is still belief in the future of the gift card sector, with major revenue growth still expected in years to come.