There may be an increase in spending on gift cards this holiday season, and that could help boost retail sales next year, former Walmart U.S. President and CEO Bill Simon told CNBC on Thursday. .
The payment service Blackhawk Network found in a survey that customers expected to spend an average of about $ 313 on gift cards around the holiday season. This represents a 19% increase over the 2019 average. In addition, 52% of survey respondents indicated that they would likely buy more gift cards in 2020 than in the past.
In an interview with “Closing Bell”, Simon said that increased spending on gift cards may initially negatively impact retailers, who are already struggling with the disruption caused by the coronavirus pandemic.
“Gift cards are unstable … because you don’t recognize the sale when the customer buys the card. You recognize the sale when it is actually exchanged,” he said. “So, when trying to measure year-end sales, you will have this liability on the balance sheet that is not a sale, even if the sale was made.”
However, the impact of gift card purchases may be much more favorable when looking at the coming 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 beyond the nominal value of the gift card. “About 20% to 30% more than the gift card is what you see in general,” he said.
The second reason is that there may be about “3% to 5% break, that is, cards that are not redeemed”, according to Simon. “This turns out to be an unexpected luck for retailers, but it will also take time to go through the cycle.”
There may be variation around when retailers will begin to see the benefits of gift card purchases next year, Simon said, pointing to the lingering uncertainty surrounding Covid-19. But asked if retailers were able to see stronger than normal sales in the first quarter, Simon replied that “they could and should”.
“If people are still reluctant to leave, they may not redeem their cards until the second quarter, and that may trickle down over the year,” said Simon. “But I think from what we are seeing in the increase in gift card purchases, that seems likely.”