To the Victors Go the Gift Cards

Gift cards are expected to be the most popular item to give this holiday season, says Accenture. The results of its annual holiday shopping survey show that 56% of gifters plan to give cards, with apparel a close second at 54%.They also found that 67% of shoppers plan to buy one to six gift cards, with 33% of shoppers surveyed budgeting $25-$50 for each.

According to GiftCard, the most frequently-gifted card last year was for Wal-Mart , followed by Target , and in fourth place was Amazon .This looks to be the same this year, with Accenture's survey finding that 40% of those planning to buy gift cards will buy them from discount retailers.

Other consumer surveys by ShopperTrak and the National Retail Federation (NRF) are predicting bleaker Black Friday sales from their results, so Accenture's giddy numbers should be taken with a grain of salt. Note too, Accenture surveyed 500 consumers, while the NRF surveyed 6,000.

What's so great about gift cards?
Gift cards are convenient for the gifter. For retailers, a gift card is a holiday gift that keeps on giving. First, 6% of cards never get used at all--pure profit. Second, recipients are two and a half times more likely to pay full price with a gift card and 20% more likely to spend more than the gift card amount-- better margins. Third, every gift card gives a retailer the opportunity to win a new customer and engender customer loyalty--more traffic. Finally, the typical post holiday sales slump is offset by gift card redemptions.

E-tail vs Retail
Taking the surveys together, the winners are still expected to be the big box retail giants and e-tailer Amazon.

Accenture also noted that consumers now expect a seamless omni-channel shopping experience, one as easy as their moves from "webrooming" to "showrooming" and back.

In this, Wal-Mart and Target have been upping their games--Target with its Cartwheel shopping app and Wal-Mart with ship-to-store as more consumers eschew online to beat shipping costs.

The real losers from the gift card trend are major department store chains: Sears HoldingsJ.C. Penney, and Macy's . In fact, Sears Holdings didn't even make the list of top 20 gift cards of 2012. Macy's came in just ahead of Wendy's at dead last.

I was frankly surprised Macy's did badly, behind J.C. Penney last year. However, with over 90% of consumers saying that their holiday shopping will be highly influenced by value and sales it's not so surprising after all.

Macy's already guided lower for the rest of this year when it reported disappointing second quarter earnings in August. CEO Terry Lundgren explained that consumers were spending on their homes and buying cars instead. A look at last year's gift card winners shows Home Depot and Lowe's at number five and six, respectively.

The trend looks even worse for the gift card losers because 76% of shoppers plan to make the big box discount retailers their top destinations, and even fewer shoppers plan to visit the major department stores, down to 35% from 39%. And don't forget Amazon; 50% of those surveyed plan to shop online this year at an online-only retailer, up from 44%, according to Accenture.

Amazon is hiring 70,000 workers for its fulfillment centers this holiday season to deal with an expected 40% increase in demand. Deloitte predicts a 12.5% rise in e-tail sales this year, which follows several years of consecutive double digit rises.

Wal-Mart has been improving its online experience for several years to challenge Amazon, investing heavily in a new and improved search engine, new mobile shopping app, and the aforementioned ship-to-store which now comprises 10% of online fulfillment.

CEO Mike Duke told CNBC in August that Wal-Mart was seeking Silicon Valley talent. Its online initiative has been paying off with 30% growth in online sales in the last quarter despite disappointing earnings overall. This year it is doubling the amount of items available on to five million-plus, and opening two of its largest online fulfillment centers in Texas and Pennsylvania for a total of 130 distribution centers. But according to Forbes, only 1% of Wal-Mart's total revenue came from online sales last year.

Meanwhile, Target debuted its Cartwheel mobile app in the spring. It has been more successful than anticipated, said Target CEO Gregg Steinhafel. This followed first quarter comments that mobile accounted for 30% of digital traffic. Ship to store was promised to be widely available at Target for the holiday season.

The Foolish takeaway
Target and Wal-Mart have similar trailing earnings multiples at 15.62 and 14.76 respectively and net profit margins of 3.70% and 3.80%, again respectively. Amazon still trades at a ginormous forward multiple of 113.35 and a negative net profit margin of -.20%. Macy's already admitted that it was challenged this holiday season.

Retail is challenged, and gift cards will play an important part in lifting revenues. Whether consumers spend the gift cards online or in store, these three companies should do better than rival e-tailers or retailers. If you're having holiday dreams of pleasant 2014 earnings surprises the clear winners are Target, Amazon, and Wal-Mart.

Which of these company's made the Fool's list of its favorite retailers?
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends and Home Depot. The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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