Gift Cards a Favorite of Holiday Shoppers and Scammers
The holiday season is often the most wonderful time of the year for retailers, with many relying on it for about 20% of their annual sales. The National Retail Federation predicts that November and December sales will range between $979 billion and $989 billion, and gift cards are expected to be a significant part of these sales.
Shoppers love gift cards. They are easy to purchase, and both relieve them of choosing a gift while ensuring the recipient gets something they truly want. A National Retail Federation study released in November 2024 shows that gift cards are the second-most popular gifts following apparel for holiday shoppers.
Gift cards offer numerous benefits to retailers, such as boosting sales, rewarding loyal customers, attracting new shoppers, increasing brand awareness, and collecting valuable customer data.
Holiday Gift Card Numbers
90% of people consider gift cards an appropriate holiday gift.
64% of U.S. consumers buy gift cards as holiday gifts.
65% purchase gift cards directly from the retailers where they will be used.
In 2023, Americans spent around $275 billion on gift cards.
Because of these facts, gift cards are a great investment for small businesses.
Advantages of selling gift cards
Gift cards are really a gift that can keep giving for a store. There’s not only the initial sale, but there’s also a host of peripheral benefits as well.
Cards are often purchased by customers familiar with a business but can be given to friends and family who might not be regular shoppers of that store. So, stores can gain new customers by offering gift cards.
When gift cards are redeemed, those shoppers are more likely to make additional purchases – Card Source says 38% more than the card’s value – adding to a store’s revenue. According to Worldmetrics.org, about three-quarters of consumers who receive a gift card end up spending more than the value of the card.
And if those gift card redeemers become regular customers, it grows a store’s customer base.
Oddly, about 6% of gift card recipients never redeem those cards. Worldmetrics.org says:
$1 billion worth of gift cards go unredeemed every year in the U.S.
The average American has $300 in unused gift cards
51% of consumers take a year or more to redeem a gift card
Gift cards can also be integrated into a store’s point-of-sale system through its credit card processor which makes selling, activating and redeeming them relatively simple.
However, gift card fraud is prevalent, with over a quarter of users (26.6%) reporting money stolen from their cards, according to CapitalOne Shopping. So, care must be taken when instituting a gift card program.
Gift Card Fraud Statistics
34% of Americans have been targeted by scams seeking gift cards as payments.
23% have given or received gift cards with no funds on them.
From 2018 to 2021, gift card fraud increased by 364%.
Common Gift Card Scams
Most scams target consumers and involve phone calls from individuals or automated systems coercing people to make urgent payments via gift cards. These calls often claim to be from the IRS or local power companies. Other scams include gift card auctions or fake sweepstakes, where consumers are tricked into buying gift cards at a discount or purchasing cards to claim a fake prize.
In 2023, the Federal Trade Commission reported that consumers lost about $217 million to gift card scams. The best defense is to use common sense and hang up on suspicious calls.
Impact on Retailers
Gift card fraud affects retailers as well. Businesses can lose customers, face chargebacks, and suffer from lost inventory and revenue. Thieves often steal gift cards from displays, use card readers to obtain identification information, and drain the card’s value once activated.
The 2023 National Retail Security Survey found that nearly 60% of respondents reported an increase in gift card fraud and abuse, including scams targeting employees. Internal theft is also a significant issue, with some shady store clerks swapping unactivated cards for activated ones to use for personal gain.
In 2022, retail shrinkage due to theft amounted to nearly $112 billion, with internal and external theft accounting for two-thirds of that total. The average loss per internal theft investigation was $2,180.
Costs of Gift Card Programs
While they are beneficial, gift card programs come with costs, including integration into existing systems, card production, signage, advertising, and employee training. Both small and large businesses are vulnerable to fraud, though smaller businesses may have less robust safeguards.
To prevent tampering, it’s essential to secure gift cards – don’t leave them on racks subject to easy theft – and establish protocols for their sale and activation.
Upshot
Gift cards are highly beneficial for businesses of all sizes, especially during the holiday season. Consumers spend around $30 billion on gift cards during the holidays, with the average person purchasing three or four cards at about $50 each. A well-managed gift card program can help even the smallest businesses capture a share of this revenue.
Paladin Point of Sale provides gift card integrations for independent retailers through a variety of co-ops and payment processors. For more information, contact Paladin Support.
brian bullock
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