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Gift Cards an $8 Billion Gift to Retailers

10 Percent of Cards' Value Never Redeemed

By Truman Lewis
ConsumerAffairs.com

December 20, 2006

Holiday Shopping • Complicated Return Policies Mean More Unhappy Returns • Online Shopping Gets Five Stars • Survey: Gifts Not Long Remembered • Keeping Santa Solvent • Gift Cards Include Hidden Costs • Senior-Friendly Holiday Gift Gadgets • Experts Offer Toy-Buying Safety Tips • Rising Energy Costs Dampen Holiday Spending Plans • Gift Cards Often Gather Dust • Santa's Feeling Pinched This Year • Gift Cards Becoming Currency For Criminals • Gift Cards an $8 Billion Gift to Retailers • Bad Gift Better Than Gift Card, Says Philosopher • Noisy Christmas Toys Can Damage Hearing • Black Friday Draws Crowds Online and Off • Tips for Surviving "Black Friday" • For the Dog Who Has Everything --- • More ...

Gift cards are a great gift, all right -- for the retailers who issue them. The National Retail Federation estimates that gift card sales will hit nearly $80 billion this year. About 10 percent of that amount -- $8 billion -- will stay right in retailers' pockets, thanks to fees, loopholes and consumer forgetfulness.

Most consumers wouldn't think of paying for an item and leaving the store without it, but that's basically what happens with the 10 percent of gift card value that goes to waste each year.

"We estimate the overall raw volume in gift cards this year to be (US)$80 billion," Brian Riley, senior analyst for bank cards with the Tower Group, told the E-Commerce Times. "Through dormancy fees and abandonment, unused funds will run about $8 billion."

Home Depot and Best Buy each recently reported adding about $43 million to their bottom line from dormant cards.

Despite that, as online shipping deadlines near, consumers stumped for gift-giving ideas are turning to the Internet to search for information on various branded gift cards, according to Hitwise, which tracks Internet search activity.

Hitwise said the share of US Internet searches for "gift cards" surged 109 percent for the week ending December 16, 2006 versus the previous week as online shoppers looked for last-minute gift ideas. Some of the fastest-growing gift card related searches in that period were "american express gift cards," up 184 percent, "itunes gift card," up 69 percent, and "visa gift cards," up 19 percent.

"For the second year now, we’ve seen a pattern of increased searches on gift cards as Christmas day approaches," said Bill Tancer general manager of global research at Hitwise. "This year branded credit and charge gift cards dominated top searches as gift givers opted for the most flexibility for their gift recipients."

Cards Not All the Same

There are two basic types of gift cards -- "open loop" cards carrying brands like Visa and MasterCard. They can be used at any establishment accepting that brand of card, and "closed loop" cards which must be used at a particular store, mall or group of retailers.

Consumers have slightly more protection with the branded open loop cards because they are governed by the Office of the Comptroller of the Currency (OCC), which oversees banks, while closed loop cards are governed by state laws, which vary widely.

Some states, for example, do not allow gift cards to expired, while others place limits on the "dormancy fees" that can be imposed if the card is not used in a specific period of time.

Recipients' Attitudes

Some cards tend to get used quickly, like fast-food and sit-down restaurant cards. But cards that must be used at a specific retailer often get set aside by consumers who are too busy to go shopping, have nothing they particularly want or -- in the case of many males -- simply hate going to stores.

That's why Gettysburg College philosophy professor Steven Gimbel thinks even a bad gift is better than a gift card.

"A bad gift is still a bad gift, but sometimes the bad gifts are the best ones to get. Sometimes it is the thought of a bad gift that counts," Gimbel said.

Additionally, consumers are frequently unaware that the cards can expire and run up fees. Often, they simply throw the card in a drawer and forget about it.

There are even cases of recipients who don't use the card, thinking that they are saving money for the person who gave them the card.

A ConsumerAffairs.com editor gave an injured colleague a $600 Circuit City credit card so he could buy a new flat-screen TV to watch during his recuperation from a serious traffic accident but the recipient never used the card.

"I thought you could use the money for something else," he explained months later when asked why he had not purchased the new TV.

Many recipients lose the cards, not realizing that in most cases, losing the card is like losing cash. Since the cards are not registered, there is no way to get a replacement. Starbucks is a notable exception; it allows its gift cards to be registered so they can be replaced, minus a small fee, if lost or stolen.

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