A consumer survey, conducted by BIGresearch, indicated that overall gift card sales are expected to decline more than 5% this year to $24.9 billion. In 2007, restaurants and retailers enjoyed a 6% increase in gift card sales.
Not only is the number of gift cards purchased expected to fall from 2007 levels but the average gift card purchaser is also expected to spend less this year - $147.33 per person compared with $156.24 last year. 2008 marks the first year that average gift card spending has decreased since this Holiday Consumer Intentions and Actions Survey began in 2003.
National Retail Federation President Tracy Mullin stated, “Since gift cards never go on sale, some price-conscious shoppers will be passing up gift cards in favor of holiday bargains.”
As a true sign of the times, the survey found that 3.1% of shoppers attributed their cutting back on gift cards to fear that the issuing restaurant/retailer might go out of business, and their fears, in some cases, are warranted. Just two weeks ago, RUTH commented that it is relying on strong gift card sales in the fourth quarter to help the company to remain below its year end maximum debt to EBITDA covenant level of 3.5x, which management said “will be tight.” In 2007, gift card sales added about $12-$13 million of revenues in RUTH’s fourth quarter, and management is expecting the same level of gift card sales this year, which may also be tight, as a result of this survey's findings.
RUTH, however, is not alone. A lot of casual dining restaurants count on gift card sales to boost revenues in the fourth quarter. This year these gift card sales are even more crucial as a means to offset the overall fall off in casual dining traffic trends. For reference, in addition to its typical holiday season gift card promotion, Red Robin also rolled out a third party gift program, primarily in Safeway and Kroger grocery store chains, to drive incremental traffic. California Pizza Kitchen increased the number of distribution points for its gift card program by three times relative to last year, and is also offering the gift buyer a $20 reward card for every $100 gift card purchase. McCormick & Schmick’s is also focused on making its gift cards more readily available in additional points of distribution, including grocery stores, Costco and the internet. The company sold $8.5 million worth of gift cards last year at Costco alone and is expecting an ever greater contribution this year.