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The Green Sheet Online Edition

December 28, 2009 • Issue 09:12:02

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Mercator of good cheer about gift cards

In a December 2009 research note, Mercator Advisory Group voices optimism about overall gift card growth in the current holiday shopping season. Unlike last year at this time, when both open- and closed-loop gift cards suffered a slowdown in their growth rates, Holiday 2009 looks particularly rosy for the gift-giving staple, according to the Boston-based consultancy.

In the note entitled 2009 Holiday Gift Card Sales Prediction: Things Don't Look So Bad From Here, Brent Watters, Senior Analyst at Mercator, estimates that the total load volume for closed-loop, private-label gift cards in the fourth quarter of 2009 will increase by 1.9 percent over the same time last year; given the same parameters, money loaded onto open-loop, network-branded gift cards could increase by as much as 50 percent.

'Tis the reason

Based on various data sources, including Mercator's own benchmark study, Watters said the open-loop gift card market grew by 54 percent in 2008, with a load volume of $7.8 billion. That number is expected to rise to $11.8 billion by the end of 2009, representing a 50 percent increase over the previous year.

Watters estimates that 60 percent of all money loaded onto gift cards annually happens in the fourth quarter of the year, "with the highest level of loads occurring days before Christmas as inventories run low and consumers make last-minute decisions on holiday gift giving."

With more retailers minimizing inventories, it is likely "there will be more out-of-stock situations earlier this season and reduced category choice, making gift cards well-positioned as a viable alternative to sold-out, targeted merchandise," Watters said.

Spirited gifting

More cause for optimism occurred on the Monday following Thanksgiving, referred to as "Cyber Monday," when online spending is considered highest.

Mercator quoted ComScore Inc. and other research firms that said online purchasing reached $887 on that day this year, a 5 percent increase from the Cyber Monday of 2008.

"This is good news for prepaid issuers that leverage the online channel, which has been providing gift cards with significant traction," Watters said.

Given that growth in gift card sales is directly related to consumers opting to buy prepaid cards rather than use cash and checks to buy more traditional gifts, the upward trend in gift card purchasing may reflect that holiday shoppers are in a more positive frame of mind this year as opposed to last, Watters said.


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