Holiday Shopping's Second Season

Fueled in large part by wildly popular gift cards, the post-Christmas period is becoming more appealing to both retailers and consumers

By Amy Tsao

In its Dec. 26 edition, The Washington Post ran a comic strip in which a teenager rouses his parents early for a trip to the mall. While they wait for Junior in the parking lot, Mom says: "Of all the holidays, 'driving around town so your teenager can redeem his gift certificates day' is my least favorite."

Indeed, a post-Christmas shopping season is afoot, fueled in large part by gift cards -- basically gift certificates that look like credit cards. The freezing gray skies and ominous snow-bearing clouds didn't deter shoppers from heading to Menlo Park Mall in suburban Edison, N.J., on Dec. 26. The parking lot was packed at 2 p.m., and the checkout lines in many stores were long as throngs of eager shoppers scooped up bargains and spent their gift cards.

Seventeen-year-old Amber Manko, of Lakeville, Conn., was cruising the mall with a friend, "exchanging bad gifts" and looking for "good stuff on sale." She was delighted that she had received several gift cards to her favorite stores, including Abercombie & Fitch (ANF ). "They're always the best present, besides money," she said. She figured she would spend all her cards that day.


  Shoppers like Manko are good news for retailers. Even though initial post-holiday readings suggest that sales for the 2004 season were stronger than expected, many stores still seem to have plenty of inventory. As a result, retailers are focused on pulling people in as soon as possible after Christmas so heavily discounted merchandise can be moved off the shelves before even steeper sales are needed at the end of January.

This so-called second season of holiday retailing -- the three or four weeks after Christmas -- is more critical than ever. "Holiday shopping is spread over a longer period of time," says Richard Hastings, an independent retail-industry analyst. Since revenues from gift cards aren't counted on retailers' books until the cards are redeemed, retailers are eager to get shoppers to cash them in sooner rather than later.

"A pretty high percentage of sales are happening post-Christmas," says Owen Fitzpatrick, managing director at Deutsche Bank Private Wealth Management, in great part due to the popularity of giving gift cards. "It's a pretty large number when you consider how much money is spent this time of year." Analysts figure some 10% of total holiday sales will get rung up from now to the third week in January. Points out Hastings: "January is slowly becoming a stronger month for the industry, but what's more visible is the decline of December as the biggest month of the year."


  That shift is partly a result of shoppers being aware that further markdowns will come after Christmas, on top of the seemingly impressive discounts that led up to the holiday. And gift cards, which make it easy for consumers to take advantage of second-season markdowns, are certainly a big factor in altering sales patterns.

Available at most stores in any denomination and good toward all merchandise, gift cards are popular with givers and recipients alike. The National Retail Federation, an industry trade group, projected in November that $17.3 billion would be spent on gift cards this November and December, up modestly from $17.2 billion in 2003. However, anecdotal reports to date put gift-card sales for the season as high as $20 billion.

The cards are also a hit with stores, which have aggressively marketed them in recent years. The cards get shoppers into stores at a time when they might not otherwise focus on buying -- or have the money to do so. That's important not only for clearing out the holiday inventory but to expose shoppers to other merchandise. All retailers try to sell full-price goods during January, says Hastings -- and some are actually successful. That trend is expected to grow along with the popularity of gift cards, which can encourage consumers to be more carefree in how they spend.


  Still, not everyone is ready to buy in the post-Christmas rush. At Menlo Park Mall, Mike Mohler of Matawan, N.J., said he got gift cards for Barnes & Noble (BKS ) and Home Depot (HD ). The 55-year-old said he'll likely spend them in the next couple of months.

Newlyweds John and Candice Wiberg, also of Matawan, said they were "just browsing" the sales. They, too, received several gift cards -- to Lowe's (LOW ), Best Buy (BBY ), and Macy's (FD ). "He spends them right away -- within days," said Candice, although neither she nor her husband used any on Dec. 26. Her plan is to redeem them over the next month. The Wibergs and other shoppers, however, will have to resist stores' all-out efforts to attract them with ads for monster sales and huge savings.

Ilam Shah, age 23, of Parlin, N.J., said she was mainly returning gifts on Dec. 26 but said she would probably buy some pants and makeup eventually. She was kicking herself for joining the mob scene on the day after Christmas. "I should really come a few weeks later when stores are trying to make room for spring stuff," Shah said.

The popularity of gift cards adds a new twist to savvy shopping, and as they become increasingly common, retailers will have a delicate balancing act: making discounts appealing enough to attract bargain-hunters while showcasing full-price merchandise that consumers can't wait to go on sale.

Tsao is a reporter for BusinessWeek Online in New York

Edited by Patricia O'Connell

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE