With Christmas decorations and music creeping their way into retail outlets even before Halloween, shoppers might have thought that there was no way to extend the holiday shopping season even further. They were wrong. Now with the ever-growing phenomenon of gift cards, Christmas spending is extending well into January and beyond.
The numbers from the 2006 holiday season are just beginning to roll in, but the big newsmaker in the retail sector this year is the gift card bandwagon, with even small businesses starting to get in on the action.
Statistics Canada showed a jump in the number of retailers offering gift cards from 53 per cent in 2003 to over 80 per cent in 2005. This means that January, typically one of the slower shopping seasons, is now competing with December in terms of traffic at the malls.
"Retailers like it because it keeps things going in January and February they are usually dead at this time. But because of the post-Christmas sales, the profit margins are lower for them," explained Market Research Corp. manager Barry Nabatian. "It's not the best thing for them because although they have made the sale when they sell gift cards, they do not deliver the merchandise until later, and usually they deliver the merchandise at a discount (in boxing day sales)."
It costs thousands of dollars to set up a gift card system and as much as 50 cents to produce each card, and those costs can add up. "That shows you how great the demand is for gift cards in the market," said Derek Nighbor, vice-president of national affairs with the Canadian Retail Association.
The advantages for retailers may not be apparent at first, but a closer look shows that these are good for stressed shoppers as well as stores' bottom lines.
Surveys have also shown that customers are less likely to be frugal with their gift cards. The JC Williams group, a retail and marketing consulting firm based in Toronto, found that 40 per cent of shoppers using gift cards buy items at full price compared to only 16 per cent of shoppers not using gift cards. "You normally go with a price limit in mind but you feel that you are really getting a deal because the gift card is paying most of it and you just pay what's above and beyond that," said Maureen Atkinson, a senior partner with the JC Williams Group specializing in retail management.
Another advantage is that the cards build customer loyalty. Unlike gift certificates, when a customer only spends part of the value of the card, that amount can be debited from the card and the customer has to come back to spend the rest. "So after buying what you really want, if there's money left over you'll come back and typically spend even more at the shop," Ms. Atkinson added.
Money is also saved by retailers in terms of labour costs, as January is typically a busy time for returns.
On the customer side, gift cards also take the pressure off of shoppers with hard-to-buy-for people on their lists.
"Customers like them because they are more personal than giving cash. They are saying, 'I think you might like this store,' which shows a bit more thought than putting $50 in a (greeting) card," Mr. Nighbor said.
Customers can play it even safer and purchase gift cards that can be used at entire malls. Bayshore Mall in the west end already has made the switch from gift certificates to gift cards. Money from gift card and gift certificate sales are pooled into an account and when businesses claim the purchases, the money is paid out to the store through the mall account.
"They are becoming a real mainstay for the business. But here in Canada, we are still behind the U.S. in the fact that those retailers push card sales all year round and here in Canada it's just a Christmas thing," said Ms. Atkinson.
Next year, one of the major changes Mr. Nighbor sees happening is the banning of expiry dates on gift cards, which the Retail Council has been working on with the Ontario government. Under changes to the Ontario Consumer Protection and Service Modernization Act last month, the government now has the authority to eliminate expiry dates on gift cards purchased in Ontario.
Consumer Reports estimates that 19 per cent of those who received cards last year had not used them because the cards were lost or expired and that money goes straight into retailers' pockets. For example, electronics giant Best Buy Co. reported a US$43 million gain in 2006 from cards that hadn't been used in two or more years.
"One thing that many people don't know is that when a retailer sells a gift card, (it) is recorded on the seller's books as a liability until the card is used. That was why they had expiry dates in the first place," Mr. Nighbor said. "That's more of a bookkeeping practice so retailers can manage their inventory. We're in the business of customer service and if customers really want this then we want to move forward on this. The market has changed in the past few years."
Mr. Nighbor added that many retailers are getting rid of expiry dates on their own as a competitive advantage.
