The Gift of Giving

The British Retail Consortium (BRC) reported this month that retail sales fell for the second month in a row. Like for like sales fell 1.5%, apparently hitting depths of gloom not seen since 2005! Even the icon of British retail, Marks and Spencer, warned of ‘weak trading conditions’ ahead whilst simultaneously announcing profits of £821m earlier this month. Why aren’t we spending? Well, the miserable weather hasn’t had us rushing out to the shops and has perhaps made staying in with the DVD boxed set of the “Bourne” films come back in vogue! And then you’d have to have been living under a rock to not have noticed the higher petrol, food, and heating bills. According to Stephen Robertson at the BRC, people are staying away from stores and “despite heavy discounting, clothing and footwear are at their weakest for at least eight years”.

Economists and commentators have been very vocal of late about high crude oil prices and quite rightly concerned about our decreasing ‘household disposable income’ and the effect on the economy as a whole. Certainly this column has been no stranger in painting a gloomy picture of the property market and inflation in recent weeks. But perhaps in our haste to embrace all things miserable, we have overlooked a key device that could help the economy...well at the very least the stumbling retail sector. No, I talk not of some econometrically tested, politically sensitive fiscal stimulus package but of the humble gift voucher!

Economists have long since debated the efficiency or rather inefficiency of gift giving. Since most physical gifts that are given tend to mismatch with the recipient’s tastes and preferences, there is an inherent inefficiency in the process. The receiver of the gift in most cases would be better off with a purchase made from cash of the equal amount. But unless you live in China where it is always appropriate to give cash in red envelopes, social taboos in the West have created the need for the existence of the gift voucher.

According to the Vouchers Association, the industry’s trade body in the UK, the voucher industry was worth £3.2bn last year. A YouGov poll taken in September last year indicated that 90% think that gift cards and vouchers are acceptable to give as presents and freedom of choice is the reason why they are considered a good option. And perhaps for that reason a £25 gift voucher can now be exchanged for anything from a French manicure to a pasta dish at John Lewis!

As for helping the retail sector, the theory is that if such individuals really do exist (as seen in yesterday’s London Lite paper) that are still eating their chocolate eggs from Easter, then surely there must be those who have yet to spend their gift vouchers from Christmas!

It is striking to note that between a quarter and a third of all vouchers given are unlikely to be redeemed. That’s almost a £1 billion of unspent vouchers across Britain in 2007 alone. There’s probably one languishing in your sock drawer somewhere! No wonder they also go by the highly uninspiring but entirely appropriate name of ‘stored‐value card’. They store their value very well, and often permanently, making it quite the win for retail stores. One US consumer electronics chain company ‘Best Buy’ last year booked
a profit of $19m from unclaimed gift cards.

However, retailers also gain from those cards that are cashed in from something called the ‘upspend’ as illustrated by my very own recent shopping experience. I received a gift voucher for £20 to spend as I wished at HMV. To obtain my desired purchase of the complete season one boxed set of TV show Heroes, priced at £29.99, I ‘upspent’ an extra £9.99. All for the good of the economy, I say!

Even our not-so-favourite airline British Airways has this week given us extra justification to spend right here in the UK. Its increase in fuel surcharge to £159 for a return trip to New York has made that Sex and The City inspired shopping trip to Manhattan less inviting than it previously was. So go home, dig out that voucher from House of Fraser and spend, spend, spend!

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And finally... The Japanese give a whole new meaning to coming out of the closet! After becoming suspicious of missing food from his fridge, a 57 year old man installed a surveillance system only to find a woman walking around in his absence and sleeping in his wardrobe. Police have since found and arrested the woman who even had a good sense to sneak in a mattress into the tiny space!

Have a good weekend,

Aparna Ram
Research Analyst
Seven Investment Management Limited

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This article represents a personal and lighthearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.