Why Holiday Gift Card Loads Will Perk up

Retailers can expect a bump up in the dollars consumers load on closed-loop gift cards this holiday season as a festive spirit takes hold and more merchants favor the cards over holiday discounts, according to a forecast released last month by payments consultancy Mercator Advisory Group.

“Retailers are expecting that shoppers will be in a buying mood, and Mercator expects that the growth in general sales will be accompanied by growth in gift card loads,” says the report, which was written by Mercator analyst Ben Jackson. Mercator each year forecasts holiday-season loads on closed-loop gift cards, or cards that can be used only at the issuers’ locations or Web sites.

Total proprietary gift card loads will total $48.3 billion in the season, which Mercator defines as Nov. 1 through the end of the year. That’s a 3% improvement from the $46.9 billion in estimated holiday-season loads in 2015, but still down from the $51.5 billion consumers loaded in the 2014 season. Of that total for this season, Jackson estimates anywhere from 10% to 15% will occur on digital rather than plastic cards.

The numbers released in November differ from the estimates Mercator issued last year for 2012 through 2015 because the firm was able to collect better data, Jackson says.

Generally, the estimated total loads for each year have been increased. Loads for the 2014 season, for example, have been restated from the previously estimated $41.3 billion. “More data from more types of retailers allowed for a more nuanced interpretation” of actual loads each year, Jackson says.

Overall, Jackson says it will take more than a year for holiday gift card loads to get back to the 2014 level. “It’s not going to get all the way back [in 2016] because there’s a lot more competition for those dollars out there,” he says.

One major driver of the upward trend this year is that retailers are more often using gift cards as incentives, rather than the straight-out discount offers they have traditionally relied on.

The reasoning with gift cards, Jackson says, is that they encourage visits and spending by gift recipients, many of whom could be new customers. “Many [retailers] see opportunities to drive both current and future sales with gift cards, which discounts can’t do,” Jackson says in the report.

Merchants whose products can’t be gift-wrapped, such as restaurants, are also turning to gift cards, Jackson points out. In some cases, issuers are handing out so-called promotional cards to customers who buy larger-denomination gift cards. Jackson cites the example of the Columbus, Ohio-based Bravo Brio Restaurant Group, which was expecting to give $20 promotional cards to buyers of $100 gift cards.

Similarly, Dallas-based bookstore chain Half Price Books planned to issue a $5 promotional card to customers who buy a $25 gift card by Christmas Eve, according to Jackson. The twist is that the promotional card isn’t redeemable until January as part of a bid to shore up post-holiday traffic.

Though they’ve gained in popularity, digital gift cards remain a challenge for retailers, Jackson says. Tangibility, or its absence, has something to do with that.

“Sending a code inside an email, people don’t feel great about giving that,” he says. “People feel better about giving a plastic card.” Sales usually spike on Christmas Eve, he says, as procrastinators seize on the opportunity to send an instant gift.

—John Stewart