Gift Cards Helping to Salvage Holiday Season for Retailers

"While lackluster holiday sales this season have led to the belief that it could be the worst in five years, we believe all hope is not lost, and gift cards could provide a silver lining," notes Mark Basham, Consumer Discretionary Retail Analyst for Standard & Poor's Equity Research. "Gift cards are increasingly becoming part of holiday shoppers' plans, and this year the trend continued. In fact, while the number of cards given may not have risen, the overall value is expected to increase this season. Although in- store buys may be off, gift card spending may pick up the slack, in our view, as items are purchased that complement these redemption sales and prolong the season."

Retailers are anticipating that 25% or more of gift card redemptions will take place in the week following Christmas, with more than two-thirds of cards redeemed by the end of January. Recognizing the value that gift cards may deliver, some retailers are looking to cash-in by putting out fresh merchandise at full prices to entice shoppers into spending more. At the same time, those retailers with unexpectedly high volumes of unsold merchandise may be discounting as much as 70% or more to lure gift card holders and offset disappointing sales.