Blackhawk Part Two: Gift Cards Replace Banks as Consumers Get Creative

Last Updated Nov 19, 2009 8:16 PM EST

Yesterday, in a post in this blog, Teri Llach, of the Blackhawk Network discussed gift cards and how that business is evolving in this holiday season.

And it isn't just growing in its conventional role.

Blackhawk Network, a division of Safeway (SWY), operates Gift Card Malls, kiosks that appear in supermarkets and some other retail environments that provide gift cards for restaurants, ecommerce sites and other stores.

In an economic environment where credit is tight and, particularly for lower-income consumers, expensive, gift cards are taking on new roles. Some may have a hard time believing that gift cards might be purchased by consumers for their own holiday shopping, but consider that gift cards aren't much different than prepaid credit cards. In fact, in the case of store cards, they can come without fees and unreasonable penalties that plague prepaid credit cards. Or, rather, their users. Heck, Fashion Bug offers a gift card advertised as never expiring.

The financial curiosities of the recession are several, and why shouldn't consumers use gift cards as they see fit? Awhile back Deloitte economist Carl Steidtmann warned that retailers would have to start acting like banks to help customers who would have less access to credit in the recession. Kmart, Sears (SHLD) and Toys"R"Us all have taken on something of that roll for the holidays with their layaway plans. And Walmart (WMT) is increasing its financial services operations year 'round. Blackhawk is, in some ways, another variation on a theme that may play louder in a long, slow, credit-starved recovery.

Bnet: How is the gift card business changing and has the consumer's attitude toward gift cards altered in the recession?

Llach: The gift card market, especially in third-party cards, is growing dramatically despite the recession. However with consumer spending habits changing dramatically this past year, we've seen gift cards evolve with more multi-pack selections, more skins and, overall, more options for the consumer. And our partners are willing to promote more often for the benefit of the consumer. Every dollar is important and consumers are finding new ways to use gift cards, such as self-use for budgeting and saving.

Bnet: Research also indicates that gift cards will be popular, in part, because they allow frugal recipients the choice of spending them on everyday expenses or on indulgences. Is that consistent with what Blackhawk sees, and how will it and its retail partners play to that kind of consumer thinking?

Llach: Yes, however, we are finding that consumers are leaning towards gift cards for a variety of reasons during these economic times. Recipients want gift cards so they will get something they will actually use. Gift cards allow people to choose when to use them: discounts after holidays, spring fashion, after they have bought their first home, etc. Gift cards help with budgeting, replacing the old envelope system where your mom tucked away money in envelops designated for certain expenditures. Gift cards are being used as a form of self-discipline to help save for big-ticket items. Consumers may, for example, come in every month and buy a $100 gift card for a big-box store as a way to save to buy a flat screen TV. When they spot a good deal, they redeem their cards.

Through research, we have identified the ways that consumers are using gift cards. We have used that information to develop marketing campaigns for ourselves and our partners. We are offering incentives and bonuses for gift card purchases and bundled offerings.

Bnet: How can the budget-conscious consumer stretch planned holiday spending with gift cards?

Llach: In the past year, especially with the recession, we have seen a lot of consumers use gift cards for personal budgeting. For example, consumers will buy gift cards at their local grocer before going to the mall. They will buy for specific amounts they have budgeted for gifts, say $50 for children's toys at a Toys"R"Us, $100 for household gifts at Bed Bath & Beyond (BBBY) and $100 for clothing gifts at Macy's (M). Consumers use the cards to stay on a budget.

Supermarket chains across the country will be offering holiday deals on their Gift Card Malls. Consumers can visit their local grocer first, buy gift cards for shopping at the mall and receive incentives such as a substantial amount off their grocery bill and discounts on gas.