Talkback: How gift cards can transform way we shop

The emergence of the gift card in retail has been an amazing phenomenon.

In the space of only a few years the humble paper gift voucher has been transformed into a convenient and eminently "give-able" plastic wonder. Yet there is more to this than a simple piece of plastic.

As recent statistics indicate, shoppers love giving gift cards and, in the lead-up to Christmas, The Warehouse reported that its new gift card was its top-selling product.

In the United States, meanwhile, the National Retail Federation estimated sales of gift cards during the Christmas season reached more than US$18 billion ($26.5 million).

And according to a survey by accounting firm Deloitte & Touche, more than two-thirds of US shoppers expected to buy nearly five cards on average this year and that more than half of those will not be fully redeemed - which no matter how you look at it could represent a great deal of money.

Never one to miss an opportunity, this is about where government steps in. A number of US state governments have introduced legislation to govern gift cards, including in some cases mandating that the unspent balance of an expired gift card is "found" money, and therefore must be forfeited to the government.

Others have banned the expiry of gift cards, creating an administration nightmare for retailers, and increasing the cost and complexity of the very scheme designed to eliminate the cost and administration overhead of paper-based vouchers.

Not everyone wants to receive a gift card as a present - in the US the trading of unwanted gift cards has become a big on-line business, with sites like SwapaGift.com allowing users to sell or swap unwanted gift cards for a flat fee of US$3.99 per card. Not to be outdone, CardAvenue.com allows the same thing, but with no fee involved, while gift cards also feature strongly on eBay.

To protect consumers, these sites validate the actual balance remaining on higher denomination cards, which leads to an interesting question - how do consumers do this?

With some cards this requires holding on the phone to get through to an operator who tells you your remaining balance, and then promptly debits your card with a transaction fee!

There is also an unanswered question about the potential dilution of the retailer's brand value when on-line trading allows their premium gift card offering to be purchased at a discount to the actual value.

Gift cards are also starting to bring about a subtle - yet profound - change in retailer behaviour.

They are only recognised as revenue when they are redeemed, so their growth means traditional December revenues have declined, and effectively been moved in part to January, when a large percentage of the gift cards are redeemed.

Yet January has historically been a "quit stock" month, where stock is dramatically marked down to clear it out and make way for the new season's stock.

Some savvy US retailers have recognised the impact of gift cards on this trading, with firms like Guess, Abercrombie & Fitch, and Federated Department Stores introducing their new season ranges at full price in early January to cash in on the gift-ard redemptions.

If this strategy proves effective and catches on with other retailers we may yet witness the end of the Boxing Day sales.

Gift cards may have caught on because they provide convenience and simplicity for shoppers, recipients and retailers alike. Yet there is more to this phenomenon than a simple piece of plastic.

These humble cards have the potential to reshape both retailer and consumer behaviour.

It will be fascinating to see what effect the phenomenon has in this country.

* Mark McGeachen is managing director of Auckland-based retailing software company AdvanceRetail. Contact him at: mark.mcgeachen@advanceretail.com