There might be increased costs on present cards this holiday, which might assist improve retail sales next year, previous Walmart U.S. President and CEO Bill Simon informed CNBC on Thursday.
Payment service Blackhawk Network discovered in a study that consumers prepared for costs, typically, about $313 on present cards around the vacations. That represents a 19% boost compared to the 2019 average. Additionally, 52% of the study’s participants suggested they would most likely buy more present cards in 2020 than in the past.
In an interview on “Closing Bell,” Simon stated the increased costs on present cards might at first adversely effect sellers, which are currently facing the disturbance triggered by the coronavirus pandemic.
“Gift cards are wonky … because you don’t recognize the sale when the customer buys the card. You recognize the sale when it’s actually exchanged,” he stated. “So, as you try to measure holiday sales, you’re going to have this liability on the balance sheet that’s not a sale, even though the sale has been made.”
However, the effect of the gift-card purchases might be far more beneficial when expecting next year, discussed Simon, who was president and CEO of Walmart U.S. from 2010 to 2014.
One factor is that when receivers shop, they tend to invest beyond the stated value of the present card. “About 20% to 30% more than the gift card is what you see, generally speaking,” he stated.
The 2nd factor is that there can be around “3% to 5% breakage, meaning cards that don’t get redeemed,” according to Simon. “It ends up being a bit of a windfall for the retailers, but that will take time to cycle through, as well.”
There might be irregularity around when sellers begin to see the advantage of vacation gift-card purchases next year, Simon stated, indicating the sticking around unpredictability around Covid-19. But asked if sellers might see stronger-than-normal sales in the very first quarter, Simon reacted that “they could and they should.”
“If people are still reluctant to get out, they might not redeem their cards until the second quarter, and it may trickle in during the course of the year,” Simon stated. “But I think from what we’re seeing in the increase of gift-card shopping, that seems likely.”
