Decline of the gift card - East Valley Tribune: Business

Decline of the gift card

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Posted: Saturday, November 29, 2008 8:46 pm | Updated: 8:52 pm, Fri Oct 7, 2011.

 Gift cards have starred on holiday gift wish lists for years. But this holiday season, the outlook for the plastic purchases is down significantly.

Archstone Consulting, which surveyed in September the shopping habits of 1,000 U.S. consumers spanning all geographic and demographic categories, predicts holiday gift card purchases will slip 5 percent this season to $25 billion.

The National Retail Federation, which surveyed nearly 8,000 shoppers in early November about their plans for holiday gift card purchases, found that fewer people plan to buy them this year than in 2007 — 53.5 percent compared with 56.6 percent last year.

The group also found that those who do buy gift cards will spend less per card — an average $147 compared with an average $156 in 2007.

The gift card, so revered by gift givers and recipients in past years, is experiencing a much bigger fall from grace than other holiday spending categories this year.

The National Retail Federation is predicting a 6 percent decline in gift card purchases compared with a relatively optimistic 2.2 percent increase in overall holiday spending.

Until this year, gift cards have been growing in popularity each holiday season, favored by recipients who like to pick out their own gadgets and goodies, and maybe even more so by gift givers who are clueless about what to buy or procrastinators.

Eleventh-hour shoppers know they can duck into a mall or even a convenience store on Christmas Eve, select from a plethora of retailers’ cards and get hearty thanks as though they actually put time and thought into the choice of a present.

Cards can treat the recipient to spa treatments or supermarket shopping trips, dinner out or designer duds.

Mall cards can be used at hundreds of stores within a shopping center. Bank cards can be used for any or all of the above.

But the tough economy has hurt the plastic presents’ popularity among the gift givers.

TOO IMPERSONAL

The biggest reason shoppers plan to buy fewer gift cards this holiday season is because they feel the cards are too impersonal, said Ellen Davis, spokeswoman for the National Retail Federation, with 22.7 percent listing that as a reason to shun them.

That’s always been the case, she said, but with financial and emotional stress weighing on shoppers this year, many are turning to handmade items such as cookies, afghans or family calendars they can create with photos from their digital cameras.

“Holiday gifts are revolving around the emotional, personal gifts,” Davis said. “People are spending more time than money this year.”

Besides, there are so many bargains this season that shoppers can spend a little and get a lot by buying merchandise instead of cards.

“This is a holiday season when, if you have any time for shopping, you can find good deals,” Davis said.

Nearly 11 percent of the survey respondents said they would rather stretch their dollars by buying merchandise on sale than giving a card.

HIDDEN FEES

The third most frequent concern about gift cards, voiced by 9.8 percent of the consumers surveyed, are hidden fees that eat up a gift card’s value and expiration dates that wipe out the remaining balance if it’s not spent by a certain time.

All the bank-issued options such as Visa or American Express gift cards have up-front and processing fees and expiration dates. Some even charge shipping fees if you order the cards online or by phone.

“It’s the bank-issued cards that give gift cards a bad name with charges and expiration dates,” Davis said. “We’ve heard some real horror stories. You are better off to put cash in a box and wrap it.”

Many mall-based cards are actually bank cards, Davis said, so customers should be wary of those as well. And check out all the conditions for use before purchasing them.

In the Valley, you would be hard-pressed to find a shopping center that isn’t using the fee-based cards.

Westcor malls, which include Scottsdale Fashion Square, Mesa’s Fiesta Mall and Superstition Springs Center, Chandler Fashion Center and SanTan Village in Gilbert, use American Express gift cards.

The cards carry a $2 front-end fee, are activated on the date of purchase and any balance disappears in four years. Monthly fees of $2.50 start in the 13th month and continue until the card expires or it hits a zero balance.

Open-air shopping center giant Vestar, which owns Tempe Marketplace and Desert Ridge Marketplace, has teamed up with Visa.

Vestar cards cost $1 to $2 based on quantity purchased and charge a processing fee of $2 per month after 13 months.

Denise Hart, Vestar vice president of marketing, said despite fees, the company’s Visa gift cards are a better gift than individual retailers’ cards with no fees because they can be used at any store, and purchasers don’t need to guess what retailers might appeal to the gift recipient.

In fact, that is a worry for the gift card naysayers. Survey respondents said they didn’t know which gift card a person would want (7.7 percent) or worried the recipient would lose a gift card (3.9 percent).

NEW CONCERNS

A new concern about gift cards surfaced this year — that the retailer might not be in business when the gift card holder is ready to cash in the card.

Of those who responded to the National Retail Federation gift card survey, 3.1 percent named that as an issue.

With giant retailers such as Linens 'N Things, Mervyns and Circuit City going out of business, and with more expected to follow if the holiday season is miserable, some gift cards could be rendered worthless.

Sharper Image left consumers holding $20 million of unusable gift cards when the high-end electronics chain slipped into bankruptcy and folded, according to Consumers Union, the nonprofit publisher of Consumer Reports.

That led consumer watchdogs to petition the Federal Trade Commission to provide protections for gift card purchasers.

In a Sept. 11 letter to the FTC chairman, Consumers Union and three other consumer-protection groups, proposed that a retailer’s gift card funds be held separately in a trust and that the cards be automatically honored if a company declares bankruptcy.

Arizona Attorney General Terry Goddard has issued a warning to gift card buyers to consider a company’s financial health before buying a card.

“Pay attention to how gift cards will be handled if the business closes its doors or files for bankruptcy,” he said.

But Davis thinks the bankruptcy issue is overblown.

“Gift cards, for the most part, are perfectly safe,” she said. Just don’t buy one from a chain that is in bankruptcy or obviously in trouble, she said.

But she did caution against holding onto gift cards too long, especially in the tenuous economic environment.

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