It's no secret that Americans love to buy, and receive, gift cards during the holiday season. Gift cards are a quick and easy solution for that certain someone who either has everything or is incredibly difficult to buy for. Best of all, it still offers some degree of personalization as opposed to just handing over cash.
According to data from the National Retail Federation, the average consumer is expected to spend $805 this holiday season. Of that, $173, or 21%, is projected to be spent on gift cards, marking the ninth straight year gift cards will be the most sought after gift. Knowing which gift cards are expected to be the most popular this holiday season would not only be smart as a consumer (no one wants to get their family or friends a dud of a gift card), but as investors it also provides us with critical data that may imply which businesses are hot, and which are not.
The seven most popular gift cards this holiday season
Thankfully for us CardHub has compiled a list of the most popular gift cards for the 2015 holiday season. Let's take a quick gander at the seven most popular gift cards, as well as three which may surprise given how much they've moved up, or down, compared to last year.
The most popular gift cards for 2015 are:
- Visa gift card (unchanged from 2014)
- Amazon gift card (unchanged)
- American Express gift card (up one spot)
- iTunes gift card (down one spot)
- Wal-Mart gift card (up one spot)
- Target gift card (up one spot)
- Starbucks gift card (up three spots)
There probably aren't too many surprises on this list. Payment processor cards such as Visa, American Express, and MasterCard, which ranked 11th overall, are popular gifts because they encompass a huge number of retailers. Prepaid gift cards also represent an alternate pathway for payment processors to boost their profits beyond just point-of-sale transactions.
Retail giants Wal-Mart, Target, Amazon, Apple, and Starbucks are no surprise, either. Wal-Mart's, Target's, and Amazon's vast selection, and Apple's and Starbucks' incredibly loyal customer bases, make them logical gift card choices.
Three big surprises
Moving beyond the top seven is where we really find some big surprises in this year's gift card rankings. Here are three of them.
1. McDonald's gift card up 10 spots to 18th
Who said the Golden Arches are struggling? According to CardHub, McDonald's (NYSE:MCD) gift cards are expected to be a hot commodity this holiday season.
Why the sudden resurgence? After years of lagging its competitors McDonald's is beginning to make major changes to its menu, and it appears to be paying off. Perhaps the most notable change is that McDonald's is now offering an all-day breakfast menu, although the number of items on the menu can vary from location to location. Fast-food competitor Jack in the Box has made a veritable killing from its all-day breakfast menu for years, so it was only a matter of time before McDonald's bit the bullet and made the jump.
McDonald's has also refined its menu, reducing the number of options to make the ordering process more streamlined. Although consumers like having choices, too many choices can confuse a customer and slow down McDonald's drive-thru service times. A more concise menu appears to be on point.
McDonald's is also making a major push to win back older millennials and attract young adults with a new and improved mobile phone app focused on its McCafe beverages. Consumers using the app may qualify for a free McCafe drink after buying five McCafe beverages. Loyalty rewards can eat into margins, but if it helps create a customer for life, then McDonald's may find the short-term margin pain well worth it.
It looks like McDonald's may be golden once again this holiday season.
2. Netflix gift card down three spots to 8th
To be clear, there were some notably big drops in this year's gift card rankings from CardHub. These include a 10-spot tumble from Ikea, a nine-spot drop for QVC gift cards, and an eight-spot fall from both Olive Garden and GameStop. But the bigger surprise, given its growing subscription numbers, is the three-spot drop from Netflix (NASDAQ:NFLX) down to eighth in 2015.
What's really eye-catching is that as Netflix's popularity is fading a bit, phone and Internet-based movie-ticket retailer Fandango shot up six spots. Yes, this very well could have to do with the upcoming release of Star Wars: The Force Awakens in mid-December, which promises to be one of the highest grossing releases of all-time. However, it may also imply that gift givers and receivers are once again gravitating toward watching movies in the theater as opposed to on their laptop or TV in their home.
What other factors might be at play here? How about Netflix's decision to boost the price of its most popular streaming subscription to $9.99 per month for new customers. This is the second $1 increase in subscription prices since May 2014. The $1 monthly increase may not seem like much, but Netflix faced serious backlash from its customer base in 2011 when it tried to boost its prices by roughly 60% and split into two separate companies. Netflix does have a huge digital library -- which will soon feature Disney movies -- at its disposal, but it can't lose focus on keeping its customers happy.
For what it's worth, the price increase seems reasonable considering the rising cost of licensing fees and its growing amount of original content. Also, eighth overall is still a very respectable ranking for Netflix. Nonetheless, it's a trend worth monitoring.
3. Home Depot gift card up 12 spots to 17th
Lastly, the second biggest gainer on CardHub's gift card list (behind only TJ Maxx) was home improvement retailer Home Depot (NYSE:HD), up 12 spots. Seeing Home Depot among the most popular gift cards isn't a huge surprise (it's one of the requested gift cards on my own wish list this year). Years of low lending rates has spurred home-buying, and underwater mortgages have inspired "trapped" homeowners to remodel, allowing Home Depot to benefit from both sides of the aisle: commercial and residential.
But, there's more to it than that. Home Depot has also made critical in-store changes that have boosted its results and customer loyalty. Perhaps the biggest change in Home Depot now as opposed to five years ago is its major push into new technologies.
For example, Home Depot recently introduced the next-generation of its First Phone, a customer service tool for associates and consumers that can speed up the transaction process by allowing for in-aisle checkout. The company has also made vast strides to make its online interface as simple as possible for consumers. Were that not enough, it also purchased BlackLocus in 2012, a data-driven pricing analytics company that helps analyze whether or not Home Depot is actually offering the lowest prices on the products it sells. Knowing where it stands on pricing is especially important during the holiday season.
It's no surprise that Home Depot's strong third-quarter results correlate with its rising popularity in gift card sales this holiday season.
The only question left to be answered is what's on your gift card wish list this holiday season?
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of and recommends Amazon.com, Apple, MasterCard, Netflix, Starbucks, Visa, and Walt Disney. It also recommends American Express and Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.