I have to admit I have several gift cards ... that I received two years ago. You see, I failed to cash them in. And I'm not alone. Of course, this is very good news for retailers, as gift cards are becoming a critical force in the industry.
A study from BigResearch indicates there were about $24.81 billion in gift card purchases for the 2006 Christmas season. This compares to $18.48 billion last year.
Smart retailers -- such as Gap (NYSE:GPS) and American Eagle Outfitters (NASDAQ:AEOS) -- have been quite creative in the design of their gift cards. It is also easy to customize gift cards with messages and the ability to track balances from the Web. Some retailers, such as Target (NYSE:TGT), even have e-gift cards, which are sent via email and can only be used on the retailer's website.
What's more, companies are getting savvy in terms of restrictions, such as expirations, and fees (for example, there may be a service fee when buying a gift card from the Internet). My Fool colleague Elizabeth Brokamp has an excellent article on this topic.
What does this all mean? Well, retailers should have fewer returns, which reduces the headaches of long lines. And with a gift card, a shopper definitely has the incentive to spend. This is especially the case with post-holiday sales; according to the financial press, retailers are relying on these sales to meet their performance targets for the quarter and for the year.
Taking this a step further, a retailer cannot book sales until shoppers use their gift cards. Thus, sales are likely to be spread out beyond the holiday season; this could mean sales through February and even into March. This may be a good thing, as the first quarter is often pretty dead for retailers.
Who knew so much punch could be packed into a little piece of plastic?
For related Foolishness, check out:
Gap, Starbucks, and American Eagle Outfitters are Stock Advisor selections. Gap is also an Inside Value recommendation.
Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
