We’re fast approaching peak holiday shopping season, traditionally one of the busiest times of the year for retailers who will be paying close attention to the sales data.
This season, they may have good reason to be cautiously optimistic, as consumers plan to increase their shopping budgets by 4%, spending $613, on average, compared to last year, according to Accenture’s Annual Holiday Shopping Survey.
With much focus on ensuring a positive shopping experience for their customers, there’s one area retailers have largely ignored, and that’s the global gift card market, which Statista estimated was worth $200 billion in the United States last year.
Gift cards have long been a staple of holiday shopping, with almost two thirds of Americans receiving gift cards last year, however, their potential as a strategic asset for retailers is frequently underestimated.
According to Accenture’s Holiday Survey, this year shoppers are planning to allocate 40% of their total holiday spend to buying gift cards. Yet, despite being a popular choice among many, it’s not always hitting the mark with recipients. Half of those surveyed told Accenture they failed to redeem the full balance of the card, resulting in an unspent balance of USD$120, on average, per consumer.
While three quarters of Americans perceived buying a gift card as an easy and safe option, a third of those on the receiving side were disappointed that the person hadn’t put time and effort into planning a personalized gift. Concerningly, 35% felt weary thinking about the time and effort they would need to put into using the gift card.
Turning disappointment into sales
Clearly there’s work to be done to deliver the personal touch that consumers crave.
However, this disconnect presents an opportunity for retailers to innovate and enhance the gift card experience for both the customer and recipient, turning a transactional – and oftentimes last minute, mind-blank – purchase into a powerful engagement tool.
Lack of engagement could be the reason 73% of US consumers held onto a gift card for at least one year after receiving it, according to Capital One.
Another could be the process itself. Recipients of gift cards told Accenture that simplifying balance check options (36%), regular reminders of unspent balances (35%) and an easier redemption process online and in-store (32%) would help ensure they use their gift cards.
The hidden value in gift cards
While the purchase of a gift card immediately translates into revenue for the retailer, unredeemed cards represent a significant missed opportunity for retailers, who could gain new, lifelong customers and incremental sales. Just consider how 61% of consumers spent more than a gift card’s value when redeeming, for an average of $31.75 more than the card’s value.
This additional spending can significantly boost a retailer’s bottom line, especially during the holiday season when foot traffic and online shopping are at their peak. Gift cards can also help retailers manage their cash flow more effectively. Unlike direct sales, where revenue is recognized immediately, gift cards create a liability on the retailer’s balance sheet until they are redeemed. This delayed revenue recognition can be beneficial during slower periods, such as the first quarter, when gift card redemptions typically spike. By offering gift cards, retailers can smooth out their cash flow and mitigate the impact of seasonal fluctuations.
Gift cards as a revenue and loyalty driver
Several retailers have already recognized the strategic value of gift cards and are implementing innovative strategies to maximize their potential. Target, for instance, offers bonus gift cards with purchases, encouraging customers to return and spend more. This approach not only drives additional sales but also fosters customer loyalty by providing an incentive to shop at Target again.
Starbucks has taken a different approach, offering double Star benefits for purchases made with gift cards. This strategy not only encourages customers to use their gift cards but also ties the gift card experience to the company’s broader loyalty program, enhancing customer engagement and data collection.
The personal touch
One of the key findings from Accenture’s survey is that consumers are looking for inspiration and guidance in their shopping journey. Six out of 10 consumers feel overwhelmed by the number of options available, and nearly three-quarters worry they’ll make the wrong purchasing decision.
For many, gift cards help address this indecision by offering a quick fix. For others, they will look to gift cards as a way of putting the enjoyment of shopping in the hands of friends and loved ones, without them having to foot the bill.
This is where retailers can play a more active role through enhancing the gift card experience, making it less transactional and more personal. For example, using data and analytics to suggest beauty products for cold weather conditions that match the balance of the gift card, while providing personalized advice on how to incorporate into a daily regimen. Followed with tailored suggestions and incentives encouraging the gift card recipient to engage and return.
Personalization can extend beyond product recommendations to include customizable designs and delivery options, such as virtual e-cards that all for festive unwrapping experiences, which add a touch of excitement and emotional connection.
Sephora is a great example of a retailer providing a range of gift cards spanning in-store, online and even corporate options to reward or motivate employees. Each card can be customized, either through ready-to-choose templates or by uploading photographs to add an extra layer of personalization. Better still, recipients can easily check their card balance through an online tool, just one-click away from curated lists of recommended products to buy.
Gift cards, a reinvention opportunity
Gift cards are here to stay and will likely remain top of holiday shopping lists for many years to come. It’s a market already worth millions – and showing no signs of slowing down. By making gift cards easy to purchase, use and manage, as well as more personalized and enjoyable, retailers have a tremendous opportunity to acquire new customers, strengthen relationships with existing ones, and ultimately, drive a festive boost to the bottom line.
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