Gift cards help retailers beat some holiday sales forecasts, with spending up 8.7 percent.
Posted Dec 27, 2005
Early indications are that retailers had a solid, but unspectacular, holiday sales season. According to data from SpendingPulse, the retail sales data service of MasterCard International's MasterCard Advisors division, holiday spending rose 8.7 percent, well ahead of the 6 percent predicted by the National Retail Federation (NRF), which has yet to release figures. However, there was one extra shopping day this year. If that extra day's sales are removed, the 2005 figures are about 5.2 percent ahead of last year's figures, according to Michael McNamara, MasterCard Advisors vice president of research and analysis.
Additionally, any strength in sales in the month since Thanksgiving, (the data covered the period from November 25 through December 24) will be offset somewhat by sales of gift cards. The SpendingPulse data counts gift cards as sales, but the NRF and basic accounting rules don't permit these growingly popular gifts to be counted as sales until the cards are actually redeemed. Until that time, they represent a liability against a company's assets.
On the brighter side, past research indicates that consumers who use gift cards tend to spend more than the value of the cards, which bodes well for future sales, according to McNamara. McNamara credits the gains in 2005 to increasing consumer demand for electronics, particularly flat panel televisions and MP3 players, as well as home furnishing growth. Furniture and jewelry sales saw declines when compared to the year-ago period.
"Prices for flat panel televisions were dropping sharply [compared to last year], while consumer demand remained strong; it was a perfect storm," McNamara says.
The furniture and home furnishing sales tend to coincide with the movement of the housing market, McNamara says. Whereas furniture sales tend to move in tandem with the housing market, which has been dropping the last few months, home furnishings tend to lag the housing sector's performance by a few months -- and a few months ago the housing market was still strong.
McNamara also credits promotions for helping to drive sales early and late in the holiday shopping season. While day-after-Thanksgiving "doorbuster" promotions have been retail staples for several years, in the past they resulted in disgruntled consumers due to supply problems or discounted merchandise that consumers didn't want. In 2005, by contrast, retailers offered early promotions on high-demand products. The launch of the Xbox 360 just before the holiday shopping season also helped drive strong early sales, according to McNamara.
Postholiday promotions will continue to drive sales throughout the end of the week, according to McNamara. "The promotional activities are working. [Retailers] are starting to carry new products, not just leftovers."
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