Bargain-hunting shoppers sink 2008 gift card sales

NEW YORK -- Gift cards, the convenient catchall of holiday giving, lost their luster this year.

Price-conscious shoppers became savvy 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 backseat 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.

Shoppers like Julie Brown stretched their money further this year by finding holiday bargains. Brown, who was shopping at Macy's flagship store on 34th Street last week during a visit to New York, said big sales lured her to buy more actual presents this year instead of gift cards.

"It seemed like there were after-Christmas prices beforehand," said Brown, who lives in Kansas City, Mo.

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 it "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. Those from financial institutions, like Visa gift cards, are expected to edge up to $28 billion in sales from $27 billion in last year's fourth quarter.

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.

Taubman Centers Inc., which operates 24 malls in 11 states, says gift card sales have been tracking down anywhere from single digit to double-digit declines, according to spokeswoman Karen MacDonald.

Most gift cards are redeemed in January or February, Riley said, but around a third of them are used six months to a year after being purchased. In previous years, this has helped retailers by boosting sales throughout the year. Furthermore, Riley said, about 40 percent of gift card holders spend at least 35 percent more than the value of the cards.

In 2009, however, Riley said more consumers may redeem gift cards as soon as possible, fearing retailers may follow in the footsteps of Circuit City, KB Toys and Linens 'n Things, which have already sought bankruptcy protection. Circuit City plans to keep operating, but KB Toys has started liquidating all its stores and will shutter operations completely.

June Byrne, 54, of South Boston, said she gave cash to a lot of relatives this year, whereas in the past she has usually given gift cards.

"I didn't want to give gift cards because I was afraid they'd be no good. I kept hearing these horror stories about stores going out of business and people being left with a card that's no good."

Store closings also may have shoppers looking extra hard to find nearby stores.

Still, gift card sales haven't fallen off a cliff completely, as demand has remained relatively strong at some discount retailers.

Wal-Mart Stores, one of the few bright spots in retailing, has recorded healthy gift card sales, Riley said. The world's largest retailer has seen sales keep growing in the discount-minded environment.

"Everyone is after low-priced shopping," Riley said.

Gift cards also remain popular with shoppers who do not want to give cash or risk the chance of buying an unwanted present.

Lisa Gillespie, 42, said she bought a gift card from Target for her 16-year-old nephew. The Manhattan resident said she would rather have him pick out something for himself.

"I didn't want to get the wrong thing for him. It's just easier to let him get what he wants," Gillespie said.