Consumer jitters, weak economy deal gift cards a blow

By Joyzelle Davis, Rocky Mountain News (Contact)

Published November 28, 2008 at 12:05 a.m.

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Gift cards, a longtime stocking-stuffer staple, are losing some of their appeal as penny-pinching consumers opt to buy steeply discounted merchandise.

Other shoppers fear that the retailers issuing cards might soon go out of business, which could render the gifts worthless.

Store-label credit cards are expected to fall 14 percent this year, to $59.9 billion, although branded cards from financial institutions like American Express and MasterCard will grow by an estimated 5.6 percent, to $28.5 billion, according to a study by research firm TowerGroup. That is a combined decrease of 9 percent, marking the first time gift cards have fallen in popularity since they were introduced this decade.

"There are really two core reasons: Retail sales overall are down this year, and there's a lot less confidence about the merchants," said Brian Riley, senior analyst at TowerGroup.

Retailers like gift cards because they fuel the post-Christmas bounce when shoppers return to the malls to redeem the plastic. Roughly a third of all gift-card holders end up spending more than the value of the cards, giving retailers a solid sales boost.

Because gift cards never go on sale, shoppers watching their budgets this year are instead opting to buy items such as a $50 DVD set discounted to $30. But Riley said that an equally big factor is the concern that many retailers won't make it past January and that the cards won't be worth the plastic they're printed on.

"You don't have a lot of rights as a gift-card holder," Riley said.

Sharper Image, Bombay Co., Linens N Things and Circuit City are on the roster of retailers that filed for bankruptcy in recent months. Circuit City has pledged to honor all its gift cards during its bankruptcy proceedings.

But Sharper Image cardholders didn't fare as well. The retailer left an estimated $20 million on unused gift cards when it filed for bankruptcy protection and initially said it would not honor the cards. The company later petitioned the bankruptcy court to accept the cards if consumers spent twice the value of the card on a single transaction.

The fear that these cards might become the gift that stops giving led Consumers Union to advise shoppers to avoid them altogether. The concerns also spurred a widely circulated e-mail that discouraged consumers from buying cards at certain national chains. Some of those retailers - including Eddie Bauer and Ann Taylor - fired back, calling the e-mail a "hoax" and assuring customers of their financial stability.

Englewood-based Western Union sees the uncertainty surrounding gift cards as an opportunity. The money-transfer-service company has launched its first holiday advertising campaign, called "Cash, the perfect gift." Western Union also is getting its message out on morning talk shows and The Tyra Banks Show.

About 65 percent of Americans would prefer to receive $100 in cash instead of a specific present or gift card of the same value, according to a survey the company conducted this month. More than half of those who would prefer cash would use that money on basic living expenses.

"People are thinking in everyday economic terms" this holiday, said Stewart Stockdale, executive vice president and president of the Americas for Western Union. "You can buy whatever you want with cash and put it toward the real essentials like gas, rent or education."

davisj@RockyMountainNews.com or 303-954-2514

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