Gift Cards’ Appeal to Millennials

Gift cards are exceedingly popular with Millennials, as new research from the Wharton School’s Baker Retailing Center and The NPD Group found. Here is fresh insight as to why:

A study on generational shopping behavior by the Wharton School’s Baker Retailing Center and The NPD Group found that, based on customer receipts, gift cards are particularly popular with Millennials. Their share of wallet of gift cards is higher than that of other age groups at mass merchants, convenience stores, and warehouse clubs.

What could be driving Millennials’ preference for gift cards? Making up one-third of the U.S. population, Millennials are the largest and youngest shopper generation and will continue to be an important segment for gift card purchases. Thus, understanding the drivers of Millennials’ liking of gift cards may be useful.

To be sure, gift cards have become more popular with consumers in general. Sales in the U.S. have grown gradually over the past several years, reaching record sales of an estimated $130 billion last year, an increase of more than six percent from 2014, according to an annual study by CEB. For nine years in a row, gift cards were the most requested gift during this past holiday season, as a survey by the National Retail Federation (NRF) found, and almost three-quarters of respondents were planning to buy at least one gift card. One in six Americans received a Starbucks gift card during the 2015 holiday, an increase from one in seven in 2014. Further growth is expected, which retailers will welcome since gift cards generate store traffic, online and offline, including from new customers. Plus, most gift card users spend above the card’s face value.

This preference for gift cards as well as cash as gifts — a 2014 holiday survey by Deloitte found cash to be the second-most desired gift (35%), closely trailing gift cards (37%) — should also please economists since gift cards reduce or eliminate the loss that occurs when people give gifts that cost more than recipients value them. Joel Waldfogel coined the term “deadweight loss of Christmas” for this economic waste.

Here are some factors that may contribute to gift cards’ popularity with Millennials:

Convenient and fast to buy. Gift cards save time to find the perfect gift, which aligns well with attitudinal traits that have been ascribed to Millennials, including a preference for convenience, getting things done quickly, and instant gratification. In fact, the NRF survey found that notably more Millennials than other age groups stated that gift cards are easier and faster to buy than traditional gifts as a reason for buying them.

89% of Millennials also like to receive gift cards, according to a Blackhawk Network study,  mostly to treat themselves with small indulgences by buying something more expensive or something that they wouldn’t normally buy. One of the reasons for Millennials’ preference for gift cards is that they don’t like returns of unwanted gifts (76%). Interestingly, when giving gift cards, only a small fraction of Millennials (less than 5%) is motivated to give a gift card to save the recipient the hassle of returning unwanted gifts, according to the NRF survey.

A practical gift. The recession has made people more conscientious about money, resulting in more cautious consumption and greater focus on value, savings, and minimizing wasteful spending. Millennials experienced the recession in their teenage years and early to mid-twenties. Thus, they grew up around a greater sense of financial carefulness.

Open loop, or general purpose, gift cards by Visa, MasterCard, or American Express, which are redeemable at any merchant, fit this more practical financial attitude especially well. They are a close equivalent to cash and therefore avoid wasting money on unwanted gifts. This type of gift card grew by 6.7% last year, according to the CEB study. It is one of the fastest-growing gift card categories. Also, Visa gift cards kept their top spot in Cardhub’s 2015 ranking of popular gift cards.

Millennials in particular like to receive open loop gift cards, more so than GenXers and Boomers (58%, 42-43, and 30%, respectively), as a Bankrate survey showed. The older the segment, the higher the preference for gift cards for a specific merchant, which may be perceived as more personal and thoughtful. In addition to the flexible use of open loop cards, Millennials that don’t own a credit card yet may use these gift cards for online purchases. Generally, cyber-security doesn’t seem as big of a concern for Millennials as for older age groups. Therefore, the protection that open loop cards provide against data hacks might not be as much of a driver of Millennials’ preference for this kind of gift card.

Electronic gift cards: Another factor that has facilitated Millennials’ buying of gift cards is e-gift cards, which fit Millennials’ more online- and mobile-oriented lifestyle. Compared to plastic gift cards, e-gift cards are even more convenient and faster to buy and deliver—anytime from anywhere to anywhere. Many merchants allow including messages, pictures, and even video clips or digital games to personalize e-gift cards. According to the CEB study above, the 2015 growth rate of e-gift cards was 26%, and this category is expected to continue growing.

Considering the role that smartphones play in Millennials’ lives, another benefit of digital gift cards is that they are portable on mobile phones and therefore accessible anytime. A large majority of Millennials likes the idea of having all of their gift cards in one place, based on a 2015 holiday survey. Mobile apps like Gyft cater to this need. Gyft lets users store their gift cards, which makes keeping track of remaining balances easier and should lower the likelihood of letting leftover credits go unused. This spillage, i.e. unused balances, which is common for gift cards, should further decrease with the shift towards digital gift cards and mobile apps.

Digital gift cards also can’t be lost as easily as plastic cards, suiting Millennials well since they seem much more likely than the general population (40% vs. 25%) to lose a gift card, based on self-reports in a Bankrate study.

“Gift card malls”: Many stores in the retail channels where we found Millennials over-indexing on gift cards, namely at mass merchants, convenience stores, and warehouse clubs, carry a range of gift cards — offline and online — not just for their own store but for all kinds of other consumer businesses. The assortment includes cards for restaurants, department stores, movies and entertainment, travel, gaming, pre-paid calling services, music, as well as Amazon. In contrast, at department stores, which usually carry gift cards for just their own store, Millennials’ share of wallet for gift cards wasn’t higher than that of the other age groups. Hence, the wider distribution of gift cards through third-party retailers seems to support Millennials’ gift card purchases.

Denise Dahlhoff, PhD, is the Research Director of the Wharton School’s Baker Retailing Center, a research center in the retail, fashion, and e-commerce space.
 

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