Experts believe 2009 gift card purchases will bounce back from last holiday season, when spending on the cards decreased to $24.9 billion from $26.3 billion in 2007, according to the National Retail Federation.
However, there’s some disagreement about how much spending on gift cards will rise.
“Consumers are buying gift cards that have less value — the average value of the cards is down by $6, to $46 from $52,” says Dave Sievers, principal and Consumer Products and Retail Practice lead at Archstone Consulting in Stamford, Conn. “Generally, they’re buying cards that can be redeemed for necessities and practical purchases — such as Walmart, Target, supermarkets, restaurants — versus discretionary items.”
The 24th Annual Holiday Survey conducted by Deloitte indicated that gift cards will be the No. 1 present for the sixth consecutive year, with 64 percent of consumers saying they’ll give or receive them. Deloitte’s survey says average spending will increase to $35, up from $28 a year ago.
“I don’t think gift card spending will be down at all,” says Dan Horne, a marketing professor at Providence College in Providence, R.I., and an expert on the gift card business. “People want to give recipients something they can really use, and they don’t want to make a mistake. Gift cards will be an alternative.”
Regardless of whether spending per card is up or down, necessities, not luxuries, will be what gift givers spend their money on.
With that trend in mind, Bankrate.com added five new cards to our annual study of gift cards. These are iTunes, Starbucks and three of the major restaurant chains: Darden (Red Lobster, Olive Garden, Longhorn Steakhouse, Seasons 52, Bahama Breeze, the Capital Grille), OSI Restaurant Partners (Outback, Carrabba’s, Bonefish Grill, Fleming’s, Roy’s) and Yum Brands (KFC, Long John Silver’s, Pizza Hut, Taco Bell).
Once again, we looked at the terms on gift cards from major retailers, including Amazon and eBay, and those from American Express, Discover, MasterCard and Visa, which are known as open-loop cards.
In September, American Express announced it would no longer charge the $2 monthly service fee after 12 months — and that change is retroactive to old cards, too. However, our survey found that Discover, MasterCard and Visa still charge a $2.50 monthly maintenance fee after 12 consecutive months of inactivity.
“This year, the gift card market is very competitive and we’re seeing discounting,” says Horne. “American Express did away with its fees. To do well, you have to innovate. Competition drives consumer benefit. “
All of the open-loop gift cards, which can be used anywhere, have a “valid thru” date now, which is printed on the front of the cards. Previously, cards expired after 24 months. This valid thru date is not an expiration date. However, once the valid thru date arrives, the cardholder must request a new card with a new valid thru date in order to keep using it.
“The valid thru date is a technological issue,” says Horne. “When you buy online, you need to give an expiration date. Since open-loop cards run on the same rails as credit cards, all those fields have to be plugged in; it has to have an expiration date.”
“The funds on the card never expire,” says American Express spokeswoman Marinna Norville. “Valid thru is just to demonstrate the magnetic stripe for the life of the card. Shelf life for the mag stripe is about five years. If you have a card with a past valid thru date, just call and you’ll get a new card.”
Get in on the CARD Act
When the Credit CARD Act pertaining to gift cards takes effect Aug. 22, 2010, gift cards cannot expire before five years have elapsed unless clearly disclosed on the card. The dormancy fee is still allowed after 12 consecutive months of inactivity. The new law does allow a one-time “service fee” to be charged.
“National retailers are quite content to sell gift cards without fees,” says Sievers, “because it brings shoppers into the stores, and people tend to make purchases that are greater than the gift card value. But the bank cards have to charge fees — that’s how they make their money.”
None of the retailers’ cards has a service fee. Starbucks charges a $1.50 handling fee for cards purchased online but no fee if the card is bought in the store.
Also, retailers’ cards do not expire, which is good for consumers. “Generally, consumers don’t like expiration dates — who likes to be told what to do and when?” says Sievers. “But human procrastination is normal, so an expiration date forces them to use it.”
This year, Home Depot joins the list of retailers whose cards can be used online as well as in the store. Only T.J. Maxx/Marshall’s and CVS do not allow gift cards to be redeemed online.
The restaurant chain gift cards we surveyed, of course, have to be redeemed in the restaurant. The restaurants all offer gift cards in denominations as low as $10, and Yum! Brands has $5 gift cards for Long John Silver’s and Taco Bell — a little stocking stuffer for your stomach. Pizza Hut cards can be reloaded with additional funds, just as Starbucks’ cards can.
Regardless of what type of gift card you receive this holiday, the advice remains the same. “Get ’em and spend ’em,” says Horne. “Boxing Day — the day after Christmas — people will be lined up to spend their gift cards at youth-oriented merchants, Best Buy. People without resources but ‘pressing needs’ — like teenagers — will be there.”
So maybe in the States we should call Dec. 26 “Big Box Day”?
Before you buy or use a gift card, check out the issuers with Bankrate’s Exclusive: 2009 Gift Card Study.
This study was conducted the week of Oct. 12, by Bankrate market analyst Heather Kuhn.