This holiday season could lead to increased spending on gift cards, and that could boost retail sales next year, former U.S. President and CEO of Walmart Bill Simon told CNBC on Thursday.
The Blackhawk Network payment service revealed in a survey that customers predicted that they would spend an average of about $ 313 on gift cards around the holidays. This represents an increase of 19% compared to the 2019 average. In addition, 52% of respondents said they would probably buy more gift cards in 2020 than before.
In an interview with Closing Bell, Simon said that increased spending on gift cards could initially negatively affect retailers, who are already struggling with disorders caused by the coronavirus pandemic.
“Gift cards are inconsistent … because you don’t recognize a sale when a customer buys a card. You recognize a sale when it’s actually exchanged,” he said. “So while you’re trying to measure holiday sales, you’re going to have this balance sheet in your non-sales balance sheet, even though the sale is done.”
However, the impact of buying gift cards could be much more favorable when looking at next year, explained Simon, who was president and CEO of Walmart US from 2010 to 2014.
One reason is that when recipients go shopping, they tend to spend more than the face value of the gift card. “Generally speaking, you see about 20% to 30% more than a gift card,” he said.
Another reason is that it can be around “a break of 3% to 5%, which means the cards can’t be used,” according to Simon. “It’s going to be a little unexpected for traders in the end, but it’s going to take time to get through, too.”
There could be variability around when retailers begin to see the benefits of buying holiday gift cards next year, Simon said, pointing to the long-standing uncertainty surrounding Covid-19. Asked if retailers could make stronger-than-usual sales in the first quarter, Simon said they “can and should”.
“If people still don’t want to go out, they may not use their tickets until the second quarter, and that could drip throughout the year,” Simon said. “But I think it seems plausible from what we see in the rise in gift card purchases.”