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UK GCVA Q1 2011 COMMENTARY

Corporate sales boost voucher market to deliver highest growth rate ever recorded

  • Like-for-like voucher sales make striking gains of 15.6% in Q1 2011
  • Growth driven by very strong performance in the business-to-business sector, with sales up 22.8% over the period
  • Consumer sales of vouchers also play their part, up 5.8% against declining
  • household consumption and negative retail sales growth
  • Stores show the strongest consumer sales by channel, up 7.1%, whilst online voucher sales remain flat
  • Open Loop and Restricted Loop gift cards both continue to make sharp gains, up by 90% and 89% respectively

In a quarter where the British Retail Consortium (BRC) reported the lowest level of growth in retail sales in 16 years, the voucher market experienced its highest ever yearon-year increase since the series began1. Reported GCVA like-for-like vouchers sales grew by an impressive 15.6% in Q1 2011, with growth largely coming from the businessto- business sector. Consumer sales also more than held their own, up by 5.8% against retail sales that fell by 0.8% over the same period, according to the BRC.

Business-to-business sales are up by a striking 22.9%, which makes for a pronounced recovery on last quarter's 2.7% year-on-year growth. Healthy consumer sales continue to show the resilience of the voucher market, providing further proof that vouchers are seen as good value by people looking to spend money more wisely in a challenging economic climate. It's worth noting again that such fast growth overall underlines the relative infancy and dynamism of the voucher market, and shows that it continues to provide plenty of opportunities for growth with corporates and consumers alike.

Q4 Highlights

By category – Strong gains across all categories, but Agents top the growth chart

Like for like sales of vouchers by Agents increased by a striking 41.0% in Q1, as the category continues to be a key driver of overall growth in the voucher market. The business-to-business sector accounts for the majority of sales here, but notably, consumer sales also experienced strong growth, up 38.3%, albeit from a low base. The Agents category accounts for 20% of the voucher market this quarter.

Corporate sales also boosted both the Leisure and Retailer category. Sales of vouchers in the Leisure category are up by 12% overall, beating wider leisure market performance of 6%. Growth came exclusively from business-to-business sales, delivering 32% growth over the period. Sales of vouchers by Retailers performed exceptionally well across corporate and consumer sectors, up by 15% and 6% respectively.

By voucher type – Open Loop and Restricted Loop make striking gains; paper vouchers experience a reverse in fortunes

  • As expected, Gift Cards continue to make striking gains. Sales of Open Loop increased by 90%, with all of this growth coming from business-to-business sales. Notably, it's consumers who boosted sales of Restricted Loop cards, however, with consumer sales up by 165% over the period. Closed Loop cards grew steadily this quarter by 5%, showing that they are now the most popular form of gift voucher.
  • Paper vouchers bucked their long-term downward trend this quarter, with sales up by 14% compared to Q1 10. It's worth noting that growth came entirely from the corporate sector; consumer sales remained flat, evidence that the wider availability of gift cards is proving popular with consumers.

By Channel – Direct Sales to corporates and Sales via Stores make highest gains

  • Business-to-business direct sales achieved the highest growth in Q1 2011, with sales of vouchers through this channel up by 23%. Online sales, which despite taking less than 2% of the corporate voucher market, leapt by 163%.
  • Sales of vouchers through Gift Card Centres and Online to consumers also
  • remained flat, but sales through stores grew by 7%, an impressive performance
  • in the light of the decline in retail sales reported by the BRC.

Outlook – voucher market will continue to rely on strength of corporate sector and resilience of consumer sales

The voucher market's exceptional growth this quarter is largely down to a strong corporate sector, as business investment in vouchers boosted nearly every part of the market. And in the main it's to businesses we should look to again for growth next quarter, as the consumer economy remains highly fragile. According to the Ernst& Young ITEM Club's Spring 2011 Forecast, UK PLC should take centre stage in growth this year as business optimism rises on the back of a healthy world economy - it forecasts that business investment will increase by 12% this year, before rising by 14% in 2012.

The consumer voucher market's resilience against the backdrop of negative retail sales growth, however, is also to be applauded. As noted retail sales plummeted again this quarter, but sales of vouchers through stores increased strongly. Weak consumer spending is likely to persist over the coming year, with recent seemingly good news on mortgage approvals, unemployment and inflation doing very little to ease consumer's woes. Despite this climate, we cautiously expect consumer voucher sales growth to continue to beat its wider markets, as consumers view gift cards as 'good value', the market continues to develop and Easter provides a further lift to the voucher market in Q2,

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