Do good things really come in small packages? For retailers, the answer may be a resounding no, once the get a good look at their fourth-quarter financial figures.
Business pundits reviewing the just-ended holiday season uniformly noted two phenomena. First, consumers continued to embrace direct channels, especially the online one, to make their purchases. Second, gift card sales were at an all-time high.
Call me Cassandra, but I don’t think these two trends are unrelated, nor do I think they will play well for retailer’s fortunes. Gift card sales are nice for the consumer, but when actual merchandise doesn’t move, prices get slashed and gift cards are redeemed for lower-margin goods. Which means that gift cards are not so nice for the merchant.
That’s more or less what happened this year. Wal-Mart saw increased sales right after Christmas, which it attributed to consumers’ use of gift cards to buy food and electronics, according to The New York Times. But the Gray Lady also noted that markdowns had been rampant before Christmas because merchandise just wasn’t moving. The cuts stopped once folks started showing up with gift cards, but the prices don’t seem to have bounced back.
Consumers aren’t dumb. They learned a valuable lesson – in the truest sense of the word “valuable”. Float the money for gift cards and the holiday dollars go farther.
I have no doubt that the rise in gift card sales is due in part to the online channel. Tout a gift card on a Web site and offer the opportunity to avoid the hassle of going into the store to pick it up? Sounds good for the hard-to-buy-for recipient, and perfect for last-minute shoppers. And once a shopper buys for one recipient, it’s tempting to keep buying for all.
Am I advocating the termination of gift cards? Not at all. The essence of direct marketing is putting the right offer, at the right price, at the right time, via the right channel in front of prospects. Clearly gift card sales indicate that the industry is doing this well.
But there is nothing in the above that says we have to sacrifice margin while doing so. It could be that marketers are going to have to reconsider the temporal boundaries of the holiday shopping season. With gift cards, retailers may have to consider extending it all the way to Twelfth Night, as opposed to slashing prices right after Christmas.
Look to your bottom line, folks. If it isn’t what you expected, the reason might be in a little white envelope.
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