Several industry research reports and consumer-survey findings suggest gift card sales this holiday season will decrease for the second consecutive year.

Some observers, however, expect gift card sales to increase because retailers are stocking less merchandise compared with last year. Fewer options, they say, may force shoppers to purchase gift cards so recipients can buy goods they want once merchants restock their shelves.

Moreover, retailers last year marked down merchandise because they overstocked, not anticipating the full effect the ailing economy would have on sales. Consumers also "went to the store or mall and [did] a mental calculation and asked themselves, 'where do I get the most bang for the buck?'" says Jim Contardi, senior vice president of prepaid solutions at First Data Corp., an Atlanta-based transaction processor.

"They saw the heavily discounted merchandise they could buy for whatever their budget was" and decided not to buy gift cards, Contardi tells ATM&Debit News. "Consumers believed the gift card recipient would appreciate the merchandise more than that same value in a gift card."

Contardi expects the situation to be different this holiday season based on conversations with First Data's retail partners.

Merchants have "purposely ordered much less merchandise going into this holiday period so that they will not have to do the markdowns," Contardi says. When consumers do their holiday shopping this year, "we can have a lot more people landing on the side of the gift card as opposed to the merchandise."

First Data Tuesday reported Black Friday helped boost gift card sales at its partner retailers by 9.8% for the week ended Nov. 29 compared with the same period last year, while the dollar value of gift cards sold increased 17.8%. First Data would not provide more specific details.

Despite predictions of bleak holiday retail sales by the National Retail Federation, gift cards will remain somewhat popular at the point of sale, according to a new Cardbeat report from Auriemma Consulting Group LLC. For the report, Auriemma in September conducted an online survey involving 439 U.S. consumers.

More than half (54%) of the respondents planned to purchase gift cards this holiday season. While the percentage is down from 59% in a similar survey Auriemma conducted in 2007, the average anticipated card-load amount was up 18.6%, to $51 from $43, according to Auriemma.

The percentage of respondents intending to buy network-branded gift cards increased to 30% this year from 27% in 2007 and from 21% in 2005, according to the Cardbeat survey. "Store-specific gift cards still have the lion's share of the market, but some consumers are not purchasing them because they are afraid of stores going bankrupt," Nancy Stahl, Cardbeat editor, tells ATM&Debit News.

A larger survey by the National Retail Federation contradicts those findings, suggesting the struggling economy will cause consumers to load less funds on average into gift card accounts–$39.80 compared with $40.54 in 2008. For its survey, the federation polled 8,692 U.S. adults in November.

Research firm TowerGroup Inc. similarly suggests consumer spending with merchant private-label gift cards will decrease 7% this year, but spending with network-branded cards should increase 3%.

Despite what the research data show, Daniel Horne, associate professor of marketing at Providence College in Rhode Island, agrees with Contardi that overall gift card sales this holiday season should increase, including network-branded cards.

"The driving force [for increased gift card sales] will be the lean inventories consumers will face at [brick-and-mortar] stores," says Horne, known also in the industry as the Gift Card Guru. Retailers were "burned last year because of the economy and had to dump inventory" by dramatically dropping prices, he says.

The economy also is a factor, Horne says, expecting sales of network-branded, "open-loop" cards to grow this year as well. "People are using the open-loop gift card and viewing it as a thoughtful gift because it's allowing [recipients] to live better," he says. "If you're about to get your lights shut off, receiving cash [or an open-loop card] is as thoughtful as it gets." ATM

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