Apparently, the gift card industry doesn’t think it is making enough profits. (article) I think most gift card users would disagree. However, one thing is clear, open-loop general-purpose Visa and Mastercard type gift cards are the most profitable segment of the industry.
Archive for the ‘Trends & Statistics’ Category
Not sure why I never thought to do this before. The results for the search term “gift card” in Google are very telling. Six of the top 10 results are for open-loop gift cards, you know, the kind that come with all the fees, are hard to spend all the way to zero, and are exempt from almost every gift card law passed to date. At this point there are probably more open-loop gift cards sold than closed-loop. I suspect when we see the full numbers for 2008 sales, this will be confirmed.
At some point, the issuers of these cards are going to have to pay the piper. They’ve gotten a free ride on the sleazy profit bandwagon for too long.
I predict that the public stink around these gift cards will come from seemingly nowhere and all of a sudden every legislator will want to get their hands on some new legislation banning fees and expiration dates and all the bad stuff they do. With the way the economy is going and how sick people are of getting ripped off, I’d say this has a good chance of happening in the next year or two.
The Tower Group holiday gift card sales preliminary stats are in (article): $61 billion in gift card sales for the fourth quarter 08 as compared with $70 billion last year. That is going to be a little more than the 5% drop they had earlier predicted for full year 2008. The most intesting tidbit from their report is that open-loop gift cards are expected to be almost half of those sales, at $28 billion. This as compared with open-loop gift cards making up about 35% of gift card sales last year.
This information is very important when you consider that almost no state or federal laws that apply to gift cards apply to open-loop ones.
According to a recent report from TowerGroup, 27 percent of gift cards bought this year will not be used and $6.4 billion of the expected $88.4 billion in gift cards sold this year wil not be redeemed (about 7%). That is lower than the usual figure of ten percent thrown around for breakage. With 27 percent of gift cards not used (and a bunch more not fully used), clearly, gift cards with little value on them offer little motivation to be redeemed.
I constantly monitor all kinds of news and blogs for information and articles related to gift cards. These days, a healthy majority of articles are negative and are related to the riskiness of gift cards because of bankruptcies, how much gift cards sales will drop this holiday season, and how gift cards in general are a bad idea because of high fees and such. Is this the end of gift cards? I seriously doubt it. Trends of the last few years show that consumers are oblivious to the negative aspects of gift cards despite gobs of information on how bad some of them are. Surveys are projecting a 6% decrease in gift card sales this holiday season; when you compare that to spending on other things, such as a 30% drop in vehicle sales and the huge drop in sales that many consumer companies are experiencing, you could actually call gift card sales projections pretty strong, relatively speaking.
While there are a lot of players in the gift card resale market, most of them are bit players; you can tell by the number of listings for cards they have on their site. One site that appears to be one of the smallish players is MonsterGiftCard.com. I wouldn’t mention them, except they put out a press release about a HUGE 40% increase in sales in one month. Um, a big increase on something small is still something small. Their site still only lists less than 100 gift cards for sale. This huge increase in sales must be the reason their URL is appraised at a whopping $2,000. When I clicked the Update this Data link on their page at Website Outlook, their value went down by about $100 and their daily page views dropped from 598 to 551 from 33 days ago. Hmm. When I checked the data for PlaticJungle.com, one of the leaders in the space, its value and page views went up from two months ago.
A survey report released recently predicts that the overall spend on gift cards this holiday season will decrease by 5%, that people will be using their gift cards less on frivolous stuff and more on necessities (so far this is all pretty obvious), and that open-loop gift cards (or what they call prepaid bank cards) will be the most desired by recipients due to the fact that they can be used in more places.
By some estimates, open-loop gift cards made up as much as 35% of all gift card purchases in 2007. Could we be headed for 50% for 2008? It will be interesting to see if breakage (the amount of the spend on gift cards that never gets redeemed/spent by consumers) increases or decreases in 2008, and whether or not this can be attributed to the increase in open-loop gift cards being bought. I suspect that open-loop gift cards have a higher breakage rate than closed-loop ones, even though they can be used in more places, because it is so hard to use the last few bucks on them.
Searching Google Trends for the words “gift card” tells us what we probably already know:
Gift cards are REALLY poplular during the holidays!
For the first time in many years, gift card sales are expected to be lower this year. (article)
When you type in a domain name, like www.giftcardadvodate.org, the internet’s domain name system does a translation from that name to the actual address (like 192.168.1.23) that identifies the machine the website can be found on. The ZONE files are the files that the top level of the domain name system uses to start the name to address translation; these files contain every domain name registered at any given time.
I’ve had access to these files since 1998 and have versions from various years between then and now sitting around. I thought it would be interesting as another view into the growth of gift cards to see how many domain names contain both the words “gift” and “card” at different times in the last decade ( top graph):
These are only .com domains. The graph includes some basic interpolation for the years I don’t have data for. If you are intested in the actual domain names registered in each year, here is the raw data: 1998, 2000, 2002, 2003, 2007, 2008. The graph on the right is the size of the gift card market according to an article in the Journal of Economic Perspectives.
Google News Archive (historical news archives) has a great feature that shows a timline with the frequency a search term shows up in articles. Searching on “gift card” gives the following timeline.
This is a pretty good representation of the rise of gift cards. This timeline has gift cards on the scene way before I thought they were popular, which I previously thought was 2002.
Before about 1998, a gift card was a card that came with a gift apparently if you look at some of the hits. 2008 is smaller because it is not yet done (duh).
Also interesting, I found a reference to prepaid Visa gift cards from 2000. I think that after 9/11, pressure was put on the debit card gift card issuers to make them scarce because they were hard to trace (i.e. National Security issue). They disappeared for a few years mostly and then started making a comeback in the last few years. They were certainly a lot harder to find a few years ago than they are now. In 2005 I could only find them at the mall; now they are in just about every grocery store.
Searching Google News today for stories on gift cards, what I noticed is that almost all the stories I found that contained the term “gift card” are about companies that are giving out gift cards as rewards and such. Clearly, gift cards are becoming a way of life.
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