Gift Cards Sales Won't Save Sputtering Holidays

(MoneyWatch)  Retailers can't count on gift card revenues to salvage a holiday selling season that is looking increasingly abysmal.

According to a report from MasterCard Advisors SpendingPulse, overall retailer sales ?€" including those from credit cards, gift cards, checks and cash -- were down between two and four percent from Nov. 1 to Dec. 24 versus the same timeframe in 2007. Stores selling food, such as supermarkets, supercenters and warehouse clubs, did better than average, the study suggested, while online sales suffered less. Amazon.com, for one, called this its best holiday season ever.

SpendingPulse examined apparel, electronics and luxury spending in detail and found that stories circulating around the media about troubles in those categories were correct. Apparel sales were down around 20% with women's clothing taking the biggest hit, men's less and footwear least, off a little under 14%. Electronics sales declined by 26% with sales of items over $1,000 slipping badly enough to drag on the entire category. But it was luxury goods that got hit hardest with holiday sales down 34% year over year. Luxury good were down a more modest if still pretty nasty 21% if the big drag here, jewelry, is excluded

Gift cards have helped extend the holiday season into January over the past decade, but they won't rescue the season this year. Although many retailers honor gift cards when they go into bankruptcy ?€" as KBToys has done in a limited way and Circuit City has done broadly ?€" they can opt not to pay off if they choose, which has raised a storm of warnings from consumer advocates and the media. Both National Retail Federation numbers and anecdotes from retailers have been strong evidence that gift cards aren't going to drive any post-holiday sale surge. In fact, the National Retail Federation predicted more than a month ago that gift card sales would fall nearly six percent this holiday season. NRF expected a slide in store gift card revenues to $24.9 billion, down from $26.3 billion last year, and this from an organization that thought holiday sales overall would be up by two percent.

Keep in mind that softer gift card sales will drive retail results closer to the negative four percent end of the range indicated by SpendingPulse. It also means retailers will have to slash prices even deeper to get rid of goods over the next few weeks so they can bring in their spring line ups. That will put a bigger squeeze on earnings in a business sector where some companies are just holding on.