There could also be elevated spending on present playing cards this vacation season, and that will help boost retail sales subsequent 12 months, former Walmart U.S. President and CEO Bill Simon instructed CNBC on Thursday.
Payment service Blackhawk Network discovered in a survey that consumers anticipated spending, on common, about $313 on present playing cards across the holidays. That represents a 19% improve in contrast with the 2019 common. Additionally, 52% of the survey’s respondents indicated they’d in all probability buy extra present playing cards in 2020 than in the previous.
In an interview on “Closing Bell,” Simon mentioned the elevated spending on present playing cards could initially negatively affect retailers, that are already grappling with the disruption brought on by the coronavirus pandemic.
“Gift cards are wonky … because you don’t recognize the sale when the customer buys the card. You recognize the sale when it’s actually exchanged,” he mentioned. “So, as you try to measure holiday sales, you’re going to have this liability on the balance sheet that’s not a sale, even though the sale has been made.”
However, the affect of the gift-card purchases could be rather more favorable when waiting for subsequent 12 months, defined Simon, who was president and CEO of Walmart U.S. from 2010 to 2014.
One purpose is that when recipients buy groceries, they have an inclination to spend past the face worth of the present card. “About 20% to 30% more than the gift card is what you see, generally speaking,” he mentioned.
The second purpose is that there may be round “3% to 5% breakage, meaning cards that don’t get redeemed,” in accordance with Simon. “It ends up being a bit of a windfall for the retailers, but that will take time to cycle through, as well.”
There could be variability round when retailers begin to see the good thing about vacation gift-card purchases subsequent 12 months, Simon mentioned, pointing to the lingering uncertainty round Covid-19. But requested if retailers could see stronger-than-normal sales in the primary quarter, Simon responded that “they could and they should.”
“If people are still reluctant to get out, they might not redeem their cards until the second quarter, and it may trickle in during the course of the year,” Simon mentioned. “But I think from what we’re seeing in the increase of gift-card shopping, that seems likely.”