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Don’t waste another dime on bloated channel reporting and vanity metrics.
Don’t waste another dime on bloated channel reporting and vanity metrics.
Fed officials project rising unemployment, slowing growth in 2023.
As the Federal Reserve seeks to bring down inflation, it is walking an economic tightrope. It is raising interest rates to cool demand so that prices will fall, but it doesn’t want to slow activity so much that it causes a recession.
Interpreting this complex picture requires watching the Fed’s actions on a number of levels. With Thursday’s latest announcement of interest rate hikes, there were three layers in particular: The action to raise interest rates, the economic projections issued by Fed committee members, and the words of Fed Chair Jerome Powell.
Let’s take a look at each:
As expected, the Fed raised interest rates by 0.5%. That’s lower than the 0.75% increases at each of the last four meetings, but Powell offered a reminder that it is still “historically high.” After the key interest rate sank to zero during the pandemic, it is now at the highest level in 15 years.
While this increase points to a slowing pace of increases, Fed officials also sent a signal that they expect rates to remain elevated. Projections indicate that many Federal Open Markets Committee members do not see any decreases coming throughout 2023.
So, there may be some letting up on the size of the interest rate increases, but they will be sustained for an extended period, and committee members project the cumulative level of the rates may go even higher. That means the interest rates' effects will have more time to wind their way through the economy, and potentially slow down demand.
The full impact of rate increases has yet to show up in the economy. Data indicates that the job market is still strong, and there is steady consumer spending. But Fed officials believe the numbers will start to speak louder next year.
The median projections of Fed committee members issued Wednesday indicate that unemployment will rise to 4.6% over the next two years, which would be up from its current 3.7%.
The committee members also cut their outlook for GDP growth back to 0.5% for 2023, which was down from 1.2% at the September meeting. With this, growth would hover just above the line of a recession.
When coupled with inflation, these forces on the economy could combine to create a more difficult environment for brands and retailers. Discretionary funds could continue to take a hit. Prices are already high on gas and food. As the Fed raises rates, the cost to borrow goes up on things like mortgages, car loans and credit cards. When people effectively have to pay more to pay down debt, they may have less for other purchases. Meanwhile, businesses will have less available easy capital to grind out tougher times and fund new initiatives. It may mean they have to make cuts. Typically, a strong job market is a key sign of consumer health, so any dent in that could reduce available funds to spend.
Inflation readings as recently as Tuesday’s Consumer Price Index print of 7.1% have shown cooling price growth, but the Fed’s goal is to bring inflation down to 2%, and Powell indicated there is still a long way to go.
“The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” Powell said. “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”
In the end, Tuesday’s news indicated there may be a path to avoid an outright downturn, but the outlook of Fed officials indicates that it is getting rockier the longer inflation stays high. Even though the median Fed projections show the US narrowly avoiding recession, there are others who believe one will come. In a note issued shortly after the meeting, economists at Bank of America Research wrote that a recession is likely in the first half of 2023.
“While falling commodity and goods prices have likely put the economy past peak inflation in the eyes of the Fed, the committee sees underlying inflation as remaining sticky due to persistent labor market imbalances,” they wrote. “The Fed remains willing to risk a recession in the labor market in order to bring inflation down and, if anything, the December projections suggest that risk has risen, not diminished.”
So in the end, the Fed pulled back on rate increases this month, but painted a picture that shows a longer and potentially more arduous task ahead. When you walk slower, tightropes can actually be more difficult to cross.
On average, customers spend $59 more than the value of their gift card, Fiserv found.
In retail, sales are often measured in goods, whether they are purchased for ourselves or someone else. There are plenty of strategies that brands and retailers use to increase those sales, whether it is marketing, loyalty programs or how that item is presented.
In most cases, these are two different parts of the equation for retailers: The product that is bought and the strategies that lead to the purchase.
That’s what makes the gift card unique.
It is an item you can buy, with a section in the store all its own. Eventually, it leads to the purchase of other goods, so the gift card is leads to a direct sale. Yet it’s also a means to build a retail brand and create incentives that both introduce customers to a store and keep them coming back.
That’s a key takeaway from the 20th Annual U.S. Prepaid Consumer Insights Study from fintech and payments company Fiserv.
At this point, the gift card feels like a staple of the shopping experience. But it is only about 30 years old. In 1994, Blockbuster Video pioneered the sale of cards for gifted purchases directly as a means to combat fraud in paper gift certificates. Since then, they’ve proven to have a multitude of uses that stretch beyond the holidays.
Starbucks and Amazon gift cards are commonly distributed as prizes at team-building events and as pick-me-ups by friends showing they care. In 2022, 60% of consumers said they received a gift card from an employer, according to the Fiserv report. That was a big increase from 32% in 2019. People appreciate the gesture. The survey found that 85% of employees think that gift cards from an employer make for appropriate incentives.
For people looking to show generosity, gift cards can also be a means to stretch dollars. At a time of high inflation, people are looking for deals with their discretionary purchases. Gift card promotions that offer discounts and bonuses are proving particularly popular, the study found. Two-thirds of consumers said promotions can influence them to purchase more, while more than half of consumers took advantage of such an offer in 2022.
Yet the more difficult consumer environment is also having an impact on overall gift card sales. In 2022, the growth of gift card purchases slowed.
“Overall, 56% of U.S. consumers purchased more gift cards in 2022 compared to 2021,” said Tom Niedbalski, VP of gift solutions at Fiserv. “This was a decline from the 73% of consumers who said they bought more gift cards in 2021 than they did in 2020.”
Inflation and less discretionary income were the driving factors for consumers who said they bought fewer gift cards during 2022, as 35% of consumers said inflation was the reason they were purchasing fewer cards.
It's important for brands and retailers to understand why consumers buy gift cards. But it's just as crucial to understand where they can fit in retail strategy. Beyond sales, gift cards can help drive repeat customers, and extend a brand. These tools are particularly valuable at a time when retailers are focused on profitability in a tougher consumer environment.
Fiserv explained four areas in which gift cards are of particular value for brands.The following is directly quoted from Niedbalski:
Improving cash flow and revenue. Gift cards not only drive in-store and online traffic, there is an associated “lift,” or overspend, when a gift card is converted into a sale. On average, customers spend $59 more than the value of their gift card.
Repeat customers. Retailers use gift cards to foster loyalty and customer engagement, ultimately leading to repeat customers. One way we see this play out is through promotions associated with gift card sales. For example: a consumer who buys a $100 gift card for the holidays will receive a $20 bonus card that can be used after January 1 – creating a pre-holiday sale and post-holiday transaction in the New Year.
Branded currency. A gift card places a merchant’s brand directly into the consumer’s wallet, increasing brand awareness and ensuring the merchant’s brand is with the consumer when they are looking to buy.
Year-round marketing. The gift card has grown beyond the traditional holiday season. From birthdays and graduations to anniversaries and babies, gift cards are becoming the most popular way to recognize milestones – giving retailers opportunities to run additional promotions throughout the year.