With Holiday Gift Card Sales Wilting, Issuers Will Have to Push Harder, Add Digital

The earliest known example of a closed-loop gift card was offered during the Christmas holiday season in 1916 by Hampton’s Quality Store in Eugene, Ore. The store advertised a “Christmas Glove Gift Card” that could be given to a lady, allowing her to redeem it for the gloves she wanted.

Or at any rate, that’s the earliest gift card example Ben Jackson can find. A couple of things haven’t changed since then, says Jackson, director of the prepaid advisory service at Maynard, Mass.-based Mercator Advisory Group. One is that gift cards work very well when you don’t know exact sizes and other details. The other is that the holiday season drives gift card sales.

Unfortunately for the gift card industry, the holidays aren’t driving sales as much as they used to.

Loads on closed-loop gift cards, the kind offered by merchants for use in their stores and restaurants, could reach as much as $39.8 billion for November and December, Jackson projects. If they do, that will beat last year’s November-December total of $38.6 billion by 3%.

But that’s his “optimistic” projection. His “continued trend forecast” is for $34.4 billion, a $4.2 billion drop. If this projection comes true, the 2014 holiday season will mark the third straight year of decline since 2011, when gift card loads peaked at $42.6 billion, a hefty 26% jump over the 2010 season.

Looking at these two possible numbers for 2014, Jackson tells Digital Transactions News it’s likely merchants will wind up with loads “a little bit up over last year”—in other words, close to the optimistic forecast.

But to eke out that modest growth, he says, merchants will have to be sure they’re selling on all channels—in-store, digital, and mobile—and will have to be aggressive about not only promoting the cards but using them as a promotion.

Jackson has not seen as many examples of this sort of promotion as he would like. “Regrettably few [merchants] are prepared to increase the level of personalization and engagement they will offer cardholders,” he notes in a recent report that includes his holiday gift card projection

A notable exception, Jackson says, is the Buffalo Wild Wings restaurant chain, which he says planned to offer to customers who buy a $25 gift card during the fourth quarter a “Blazin bonus card” that could be good for $5, $15, $25, or $100. “The company is using the sweepstakes both to promote sales of its gift cards and to encourage repeat visits,” he says in the report.

Also critical to boosting sales is the digital gift card. Jackson figures total loads on these cards in the two-month holiday period will come in between $2.5 billion and $3 billion. That’s about double what Jackson projected last year and enough to make a difference in reaching or coming close to the optimistic projection for total closed-loop gift card sales. Once seen as a gimmick, digital cards are now “a real thing where you can gain some traction,” Jackson tells Digital Transactions News.

Digital cards, which can be emailed or texted, appeal to three types of people, he says. Procrastinators like them because they can send them on Dec. 24. Tech geeks like them because they want to use the audio and video greeting technology that the cards offer. And the third group consists of people who have friends or relatives in another part of the country where the issuer’s stores are. “It’s people who want to buy a card for In-N-Out Burger in California,” Jackson says. “I live in Massachusetts and I can’t do that here.”

A developing subcategory of virtual cards consists of mobile cards, which Jackson defines as cards that require the recipient to have a mobile device for redemption. “The technology is still being developed, so there’s not a lot of purely mobile cards on that definition,” he says. “But as the technology develops and we start to see location-based offers and Bluetooth low energy, targeted incentives, and more finely tuned offers and rewards, mobile will become more important.” Bluetooth low energy, or BLE, refers to special transmitters, or beacons, situated in stores to detect customers’ mobile devices as they enter the store and deliver offers to them.

Still, Jackson cautions merchants not to rush into mobile gift cards before they, and their technology, are ready. “Everyone has seen Starbucks and everyone wants to be Starbucks, even if it’s not appropriate for them,” he warns.