The Increase in Gift Cards Bought During the Holidays May Be Good News for Retailers in 2021
With local retailers and restaurants struggling, one of the most common pieces of advice for supporting local businesses has been to buy gift cards. They put money in the pocket of the business right away, and you still get to use them later on.
In addition to those immediate benefits, experts are pointing out that the gift cards bought during the holiday season may also help retailers in the beginning.
How It Helps Businesses in the Future
The idea behind the immediate benefits of a gift card is fairly obvious. You give the retailer cash in exchange for the card that you will spend in the future. They essentially get money for the promise of future free goods or discounts. T
he way the gift cards help in the future can take a few more seconds to grasp. It comes down to the fact that few people spend exactly the amount on their gift cards. Most will spend more than that, giving the business in question additional income.
The other factor is that some might never redeem the gift cards. Experts estimate that about 3-5 percent fit into this category. If the gift card is never redeemed, the retailer makes money for doing nothing. The only money they lost is whatever is the cost to issue the gift card, likely a matter of cents.
The Caveat
The caveat, however, is that spending the money on gift cards can initially negatively impact retailers. After all, up to the gift card amount, they have to give their products for free.
How It Will Play Out for Retailers
Experts are still unsure when retailers will start to notice people redeeming gift cards. It will depend mainly on how well COVID gets controlled. It is possible that some retailers will begin to see people redeeming gift cards in the first quarter. There will likely still be some hesitancy to go shopping, which will likely lead to the use of gift cards throughout the year. This could potentially give retailers a smaller boost throughout the year instead of a larger one initially.
When the gift cards are redeemed, retailers typically see people spending 20 to 30 percent more than the value of a gift card. This varies slightly, but it is enough to mitigate somewhat the negatives of having to provide a product for a discount. In some cases, it is enough to more than compensate for it. That is especially true if the original purchase helped keep the business from going under.
https://www.moneycrashers.com/support-small-businesses-coronavirus-pandemic/
