Alison
By Allison Linn Senior writer
msnbc.com
updated 12/27/2006 8:51:23 PM ET 2006-12-28T01:51:23

When they gathered for Christmas this year, Catherine Grams and her family did not give one another bulky boxes containing the usual holiday fare. Instead, the entire family agreed to a new tradition — a gift card exchange.

Two days after Christmas, Grams was in downtown Seattle with her mother-in-law preparing to spend her Christmas gift card at Old Navy. The Billings, Mont., native said she preferred getting the cards, as well as giving them.

With the cards, she said, you can avoid “not knowing what to get someone, (and) if they’re going to like it.”

For an increasing number of Americans, at least one holiday gift this year came in a small, credit-card shaped package.

Marshal Cohen, industry analyst with NPD Group, said his research shows that 51 percent of consumers planned to give someone a gift card this holiday. That’s up from 39 percent just a year earlier.

The branded cards are now available at most major retailers, ranging from Crate & Barrel to JCPenney, as well as many shopping centers, credit card companies and even restaurants.

For gift givers, the allure of the cards is clear. Before the holidays, they save shoppers those frustrating hours spent slogging through the mall searching for the perfect present. And afterward, they offer some measure of assurance that the recipient won’t be stuck with a scarf they’ll never wear or a gadget that will only gather dust in the garage.

Dana McLeland of Seattle said her mother has completely given up on traditional shopping for her children and now just buys gift cards from their favorite retailers. This year McLeland, a movie buff, got a card good for movie tickets.

“It was a good surprise,” she said.

As more people turn to gift card giving, analysts say gift cards are starting to change how retailers think about their all-important holiday sales strategy, especially after Dec. 25.

“It also means that the holiday season really is longer than this November-December" time period, said Michael Niemira, chief economist with the International Council of Shopping Centers. "It really is a November-to-January story, with January being more important in recent years."

This year especially, retailers may be counting on the gift cards to give them a bit more holiday cheer in the last days of the year. The shopping center council said Wednesday that a rush in post-holiday shopping, fueled by gift cards, could help alleviate some weakness in pre-Christmas shopping.

Still, the trade group is expecting November and December sales to come in at the lower end of Niemira’s forecast, which called for same-store sales to increase 2.5 to 3 percent.

Niemira’s research shows that about 40 percent of gift card redemptions occur in January. But, he said, he’s not sure how much those redemptions are affecting the deep discounting that typically occurs after Christmas.

“Right now we’re finding that the consumer’s still shopping with those gift cards looking for that clearance,” he said.

C. Britt Beemer, chairman and founder of America’s Research Group, said he is seeing some retailers discounting less heavily, in part because of gift cards.

“Retailers are definitely trying to protect their margins. They are not as aggressive across the board as they normally are,” Beemer said.

That means consumers can still find deals on holiday items or winter apparel, Beemer said, but are not as likely to save money on other types of merchandise.

The surge in gift card use is beginning to prompt some retailers to bring in more fresh, full-price merchandise in January, Cohen said. Some retailers are even rushing out their spring items as early as Dec. 26, hoping to cash in immediately on people already weary of heavy coats and Christmas decorations.

Starbucks Corp. typically sees a spike in gift card use in January and February, spokeswoman Lisa Passe said. The company starts stocking shelves with fresh Valentine’s Day items soon after Christmas, although Passe said that is not necessarily related to gift card redemptions.

Cheryl Libby of Puyallup received three Starbucks gift cards this holiday season, and by Wednesday she was already spending her first one on a latte and mug. A Starbucks regular who even keeps a collection of the company’s gift cards, she was glad that people knew what she would like.

“That makes me happy,” she said.

Jim and Jan Langenbach of Kelso, Wash., also were already using a Starbucks card they received for Christmas for a caffeine jolt ahead of a day of shopping in downtown Seattle.

The couple also had given gift cards to several family members, but they couldn’t agree on whether to do it again next year.

Jim Langenbach argued that the cards made it easy to do last-minute holiday shopping, and ensured that their family would get what they wanted. But Jan Langenbach said she didn’t feel right just buying the cards, would rather spend time picking out presents herself.

“I already told them that this is the last year they’re getting gift cards,” she said.

Another big bright spot for retailers is that gift card users are likely to shell out more than the amount of money on the card. Cohen estimates that the average shopper ends up spending 114 percent of the value of each gift card, meaning a person with a $50 card might spend $57 at the store.

The cards also can be a way to introduce a store to a new potential customer, if the recipient hasn’t shopped there before. Cohen said that can be a downside, too, if stores are making their first impression on a customer amid the havoc of post-holiday clearance sales. He thinks that’s why some retailers are making more of an effort to spiff up their stores after the holidays.

“It’s changed how the retailer looked at January,” he said.

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