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Gift card sales could offer hope to struggling Michigan restaurants

Businesses that have made it to this point in the COVID-19 pandemic need to reduce their revenue deficits to stay open

GRAND RAPIDS, Mich. — Americans have been spending far more on gift cards heading into the 2020 holiday season than they did in 2019, according to InMarket numbers released Thursday.

The company reports that unique gift card purchases were 363% higher in September and October of 2020 than they were during the same time period of 2019. InMarket says this indicates that gift cards are no longer a last-minute gift idea.

Those surging gift card sales could help businesses in service industries, which have taken the biggest hit in the recession caused by the COVID-19 pandemic.

"We're starting to see businesses fail at a faster rate," said Dr. Paul Isely, the Associate Dean of Grand Valley State University's Seidman College of Business. 

"Across Michigan, we have somewhere between 23 and 25% of small restaurants that have closed and have probably closed permanently."

Isely says many more businesses likely won't survive the pandemic, and those that do will need to make it roughly eight months until vaccines are widely available.

"For those restaurants that are still open, they're seeing revenues that average 20% less than last year, so what we have to do is try to bridge that gap a little bit. If we can make it a little narrower, more of these businesses will make it to the other side."

Pushing gift cards is a strategy some restaurants are using to reduce that revenue deficit. Isely says there are a number of factors that will determine whether that strategy will work.

"It depends on how much people purchase. And really all it is is pre-purchasing things, so it also makes a difference how fast those gift cards get turned in."

One obstacle small businesses may have difficulty overcoming is that they have a much harder time distributing gift cards than large chains.

"They don't have access to the resources to distribute those easily and get them in front of you when you're doing impulse buys," Isely said, referring to the wall of big business gift cards you might find while checking out at the grocery store.

Businesses that are still open may, however, benefit from the closure of their competitors.

"The ones that had the worst economic situations have already closed their doors, and that's making it easier for those that are still functioning, because we have fewer choices to go to and that's sort of smushing us out to buy things from those other places," Isely said.

A second round of government stimulus might also help the businesses that remain open.

Though the economic situation is challenging, Isely still has reason for optimism once we get through the pandemic.

"The businesses that are going under are the types of businesses that can come back afterward," he said.

"Many of these businesses don't have a lot of capital needs up front. They might be able to get investors to invest in them once things start moving again. At some level, things are dire for the next six months but for the two years after that, it's going to be very ripe for entrepreneurs to jump in and fill the hole that was left."

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