Business of gift cards booming around holidays
By Tom Webb / St. Paul Pioneer Press
INVER GROVE HEIGHTS, Minn. -- Except for Santa’s workshop, more 2013 holiday gifts may have been manufactured in Inver Grove Heights than anywhere else.
That’s because the St. Paul, Minn., suburb is a powerhouse in gift cards, the plastic rectangles that have grown so popular that, by one estimate, they now account for nearly one-fourth of all U.S. holiday gift spending.
Two decades after the gift card was first introduced, its dominance has scrambled old shopping patterns. Nowadays, Christmas sales don’t end Dec. 25. Stores prepare for more to come, as after-Christmas shoppers hit the malls to redeem nearly $30 billion in gift cards.
“What happens is that it spreads out the holiday spending to be after Christmas,” said Dave Brennan, a University of St. Thomas retail specialist.
Two of the holiday season’s 10 busiest shopping days came after Christmas, according to ShopperTrak, a retail metrics firm.
But thanks to after-Christmas markdowns, “Those gift cards used after Christmas are going to be worth a lot less to the retailer because the margins are going to be much smaller,” Brennan said.
No matter; the gift-card business boomed in 2013.
“It was the No. 1 most-requested gift among consumers this year,” said Pam Goodfellow, director of consumer insights at Prosper Insight and Analytics, a market research firm. That marked the seventh straight year that gift cards topped its survey.
None of this comes as a surprise at Travel Tags, which historically ranks among the nation’s top gift card makers. Last year, it manufactured more than 500 million gift cards at its Inver Grove Heights facility — roughly half of which were activated in November and December.
“That is about 100 million more than we’d been doing” prior to 2012, said Martha Weaver, the company’s marketing manager. “The last two years have been very good.”
Why the surge? A stronger economy helped. But Weaver sees a pair of additional factors, one touching on the cards’ long reputation as being a bit impersonal and unimaginative.
“There’s a generation of (older) people who are now understanding and giving gift cards, who didn’t before,” she said. “The stigma of gift cards is gone, and the older generation is starting to see the value of giving something people really want. They’re not fighting the gift card as much as they used to.”
The other change: Cards are more widely available than ever.
Once, retailers didn’t want to sell gift cards for other merchants. Now, a growing number of stores “have all sorts of gift cards hanging on a rack,” Weaver said. “They’re treating it like a product, not as competition.”
Two years ago, Travel Tags counted 10 large retailers that stocked a wide array of gift cards. This year it spotted those displays at 21 large retailers.
Beyond those reasons, gift cards also carry fewer risks than they once did.
Until a few years ago, the value of many cards expired a year or so after they were issued. Then Congress stepped in and changed the law so that the cards generally do not expire. That made an easy-to-use product even more convenient.
“To some extent, it almost parallels with what’s happening with the online experience,” said Brennan, the St. Thomas retail specialist.
Weaver of Travel Tags said that retailers are increasingly shying away from extravagant designs, such as a card that “lights up or whistles or is flocked or scented.”
Instead, what has become more popular is “placing a lot more emphasis on the packaging they sell alongside those cards -- gift card boxes, stuffed animals that can hold gift cards, or gift bags … to dress them up a little bit,” she said.
Technology is also changing the gift card industry. Mobile gift cards are becoming more commonplace, although still represent only about 3 percent of all U.S. gift cards, the National Retail Federation said.
So with 1 billion U.S. gift cards purchased over the past two months -- a figure that keeps rising -- will the holidays someday go all gift card? Not a chance, Brennan said.
“What are you going to see under the Christmas tree, other than a bunch of envelopes?”
The Pioneer Press is a media partner with Forum News Service.