There may be more spending on gift cards this holiday season, and that may help increase retail sales next year, former Walmart U.S. delegation chairman Bill Simon said Thursday , on CNBC.
The Blackhawk Network payment service found in a survey that shoppers expected to spend, on average, about $ 313 on gift cards during the holidays. This represents a 19% increase compared to the 2019 average. In addition, 52% of respondents said they would likely purchase more gift cards in 2020 than in the past.
In an interview with “Closing Bell,” Simon said the increase in spending on gift cards could initially negatively affect retailers, who are already dealing with the disruption caused by the coronavirus pandemic.
“Gift cards are weird … because it doesn’t recognize the sale when the customer buys the card. It recognizes the sale when it really changes,” he said. “Therefore, while you are trying to measure holiday sales, you will have this liability on the balance sheet that is not a sale, even though the sale has been made.”
However, the impact of gift card purchases could be much more favorable when forecasted next year, said Simon, who was president and CEO of Walmart USA from 2010 to 2014.
One reason is that when recipients go shopping, they usually spend beyond the face value of the gift card. “Generally, between 20% and 30% more than the gift card is what you see,” he said.
The second reason is that there can be a “3% to 5% break, that is, cards that do not change,” according to Simon. “It ends up being a bit unexpected for retailers, but it will also take time to get through it.”
There could be variability around when retailers start seeing the benefit of next year’s gift card purchases, said Simon, who noted the persistent uncertainty surrounding the Covid-19. But when asked if retailers could see stronger-than-normal sales in the first quarter, Simon replied that “they could and should do it.”
“If people still resist going out, they may not exchange their letters until the second quarter, and they may come in during the course of the year,” Simon said. “But I think from what we see in the increase in gift card purchases, it seems likely.”