Retailers hoping gift cards keep on giving

NEW YORK - As merchants look to this weekend and the rest of the Christmas aftermath, they're counting on droves of gift-card-toting customers to return to malls.

But those numbers may be smaller as the industry braces for what some analysts believe will be a second consecutive holiday season of declines in gift-card sales.

The final word is not out. Mall of America in Minnesota is seeing gift-card sales flat through this week compared with a year ago. Mall operator Taubman Centers cited lukewarm sales heading into the final week before Christmas but saw a rebound in recent days as threadbare shelves left last-minute shoppers few other choices.

Overall, the recession has stolen gift cards' steam. Reduced consumer spending has extended to gift cards, but frugal shoppers have also turned to buying discounted gifts so they can stretch their budgets. Recipients are also likely to be stingy when they redeem their cards, focusing only on deeply discounted items, as they did last year.

That poses challenges for the critical week after Christmas and for 2010, as consumers typically spend more than the card's value. Gift-card sales also are a key way for stores to drive traffic in the first quarter, traditionally a quiet time for the industry.

This holiday season, merchants pulled out all the stops to put the cards in consumers' hands. The catalog retailer L.L. Bean, for example, offered a free $10 gift card with purchases of $25 or more; last year, shoppers had to spend $50.

Cindee Weiss, 41, of Manhattan, who works in magazine publishing, hasn't bitten. In Christmas seasons past, she would spend a total of $100 on gift cards at Gap or Anthropologie for four friends, but this year, she was baking cookies and brownies for them.

"In this economy, I have to be a little more aware," she said, citing an uncertain job market. She also noted that in tough times, she wanted to do something personal.

C. Britt Beemer, chairman of America's Research Group, said another holiday season of weak gift-card sales would be "devastating for retailers."

Another issue is that more shoppers are giving cash this season, because they couldn't get to the stores or want to be even more practical, Beemer said. Typically, about 75 percent of those dollars go not to stores, but toward bill-paying or to restaurants, he said.

"Gift cards' popularity hasn't died, but the recession has changed the way that people give gifts," said Craig R. Johnson, president of Customer Growth Partners, a retail consultancy.

According to a consumer survey conducted for the National Retail Federation, gift cards remain the most requested holiday item, but several industry surveys have found that the average person plans to spend less on them than last year.

Best Buy reported that gift-card sales rose 40 percent in November, after a big drop last year as consumers cut their spending as the financial crisis escalated.

Brian Riley, research director at TowerGroup, a research company, remains bearish on the category, though he thinks business will rebound when the economy picks up.

Riley expects that overall gift-card sales will fall 4.4 percent this year, from $91 billion to $87 billion - with a 3 percent increase in general-purpose card sales and a 7 percent decline in store-card spending. That follows a 9 percent drop in 2008.

Michael P. Niemira, chief economist at the International Council of Shopping Centers, said he was not sure how fast shoppers would redeem gift cards, because stores slashed inventories and won't have mounds of holiday leftovers.

Many savvy retailers are making sure to have fresh merchandise when shoppers return today. Stores also say they aim to capitalize on a quirk of the calendar - a full weekend after Christmas.

To take advantage of that, Kathleen Waugh, spokeswoman at Toys R Us, said that the toy merchant shipped more new merchandise this week than it did this time last year.

Wal-Mart Stores Inc. is extending holiday deals such as a selection of top Blu-ray movies for under $20. It's also offering a $50 gift card with an Xbox 360 purchase.

"Shoppers expect to find new deals after Christmas," company spokeswoman Melissa O'Brien said. "But we wanted to make this weekend especially exciting."