Perspective: With A Tip Of Our Hat To Tradition—First Data Advisors 2011 Holiday Prepaid Closed Loop Forecast
- Type: First Data Perspectives
Did you know gift card activation dollar volume increased 17% on Black Friday in 2010 over 2009? Or that December 23—the largest gift card activation day of the year—increased about four percent from 2009 to 2010?1 Once relegated to the category of last minute gift ideas, more and more U.S. consumers are identifying gift cards as an item they desire to purchase earlier in the holiday season.
For retailers, the versatility of prepaid card technology presents opportunities to drive consumer behavior in multifaceted ways: capturing a greater share of consumer spending by locking in purchasing intent, building brand loyalty, incentivizing sales of desired products, or directing traffic to their preferred distribution channel. The best opportunity still awaits retailers as First Data Advisors forecasts the last three months of 2011 will generate 45% of total annual prepaid gift card activation volume—higher than the National Retail Federation’s estimates of holiday season sales of 25–40% of annual sales for overall retail spending dependent on the merchant category.2
Peak Holiday Season Expands To Match Budget Conscious Consumer Preferences
However, the peak retail season is no longer a Black Friday-to-Christmas Eve shopping marathon. It's not even a Halloween-to-Christmas Eve event. This year, some retailers are strategically placing their holiday merchandise in their brick-and-mortar stores in September—in an effort to allow customers to budget purchases over an extended period as an offset to the weak economy. Traditionally a month of “white-sales” and inventory clearances, January has become a part of the holiday shopping experience. Consideration must be given to customers who delay holiday purchases into January to earn additional savings on product mark-downs and increased purchase volumes from the redemption of gift cards.
Add to this mix of factors the “always on” availability of e-Commerce, m-Commerce, and s-Commerce (social commerce) distribution channels that allow retailers to influence the purchase decision and move their products closer to the moment of a customer’s purchase intention. Virtual voucher and prepaid technology play an integral part in both promoting and facilitating these sales. What we have for 2011 is an extended period of holiday-related gift card activations, customer-incentive induced fluctuations in individual company results, and the opportunity for greater last-minute virtual card purchases that can be delivered through digital technology almost immediately.
Tipping Our Hat To Tradition
Despite the factors cited above, the largest percentage of prepaid cards will still be activated in the weeks between Black Friday and Christmas Eve. Tipping our hat to the traditional measurement of economic health marked by these weeks, in 2010, First Data Advisors observed a 3.1% year-over-year growth in the total dollar volume of gift card activations during the period between Black Friday and Christmas. U.S. consumers showed a greater willingness to purchase holiday prepaid gift cards at third-party gift card malls—especially for casual dining restaurants—as the YoY increase in the number of gift cards sold through these outlets increased 15.5%.
Another important trend that will continue into the holiday season is the growth in online activations of eGift and virtual gift card products. Retailers will take advantage of the immediacy the digital commerce channels bring to fulfill consumers’ purchasing intent. Michael Hursta, vice president and general manager of Closed-loop Prepaid for First Data Corporation, believes that the strong consumer adoption trends of smart phones and tablet devices will allow for more personalization of virtual gift cards. “Consumers who are fully engaged with their mobile devices are looking for services that will maximize their feature-rich capabilities. There will be a lot of experimentation this holiday shopping season as retailers combine the multimedia capabilities of these devices with virtual gift cards to add personalization and visual impact to the gift giving experience.”
Discount-hunting consumers, still struggling against unfavorable economic conditions, will use digital technologies more fully in an effort to “get a better deal.” Customer incentives that are enabled by prepaid technology can assist retailers in driving those consumers into their bricks-and-mortar retail store.
First Data Advisors believes that overall consumer spending is still fragile and susceptible to macroeconomic shocks. However, prepaid technology is a versatile tool that has evolved beyond the one-dimensional in-store purchase of a plastic card product. With the proliferation of opportunities to use this technology in the physical, online and even mobile channels, we're confident that merchant branded prepaid closed loop sales dollar volume will experience growth during the weeks between Black Friday and Christmas Eve of 3% to 6% in 2011—higher than the 3% moderate gain forecast by the International Council of Shopping Centers for holiday sales.3