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Archive for Thursday, December 18, 2003

Gift cards popular with holiday shoppers

More retailers easing policies, educating customers on hot seasonal item

December 18, 2003

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— Like more and more holiday shoppers, Juliette Coulter, of Dallas, thinks the right gift for many friends and family members is plastic and fits in a wallet.

She's spending $300 this season on gift cards from Target, Old Navy, Starbucks and other stores. It means no worrying, for example, about size or style for a pair of nephews ages 9 and 14.

"They have very specific tastes, and I don't want to get them the wrong thing," she said. "I want them to think I'm the cool aunt."

Gift cards are hotter than ever this season, with merchants expected to sell more than $17 billion worth during the holidays, or 8 percent of all business, according to the National Retail Federation.

Gift cards actually help stores extend the selling season, as shoppers flood in after the holidays to redeem their cards and, the stores hope, spend a little more.

Plus, the gift cards cut down on returns and increase sales of regular-price items, because shoppers using a card are less interested in getting a discount.

Yet as the cards become more familiar, many recipients are grumbling about some headaches associated with them -- fees if the cards are not used quickly, problems getting replacements if they are stolen or lost, and questions about what to do with those last few dollars or even cents of credit.

Aware of the issues, some store chains are revising their policies or doing more to educate customers about how to get the most out of gift cards.

Coulter said she doesn't worry about card fees because her recipients use them quickly -- which is often the only way to make sure you get full value. Dennis Fish, of Atlanta, learned that the hard way.

Gift cards hang at a JC Penney store in Dallas. Gift cards are
popular this holiday season. Merchants are expected to sell more
than $17 billion worth during the holidays.

Gift cards hang at a JC Penney store in Dallas. Gift cards are popular this holiday season. Merchants are expected to sell more than $17 billion worth during the holidays.

Fish purchased a $120 gift certificate from a spa for himself and his wife last year. They waited just over a year to use it -- and were hit with a 20 percent "reactivation" charge. The card had a one-year expiration period.

"Never will I buy one again until I know the ins and outs of the policies," he said.

He complained, and got the charge lifted. But he's buying just two cards this year, compared to 10 last year.

Brad Ferris of Washington says gift cards "drive me nuts."

"If you get a $300 card and you only purchase $250, you end up forking out more money to these stores because they don't refund the cash you don't spend," he said. "I always receive these cards, and they end up being more of an expense than a gift."

Besides reactivation fees, some store cards carry a kind of reverse-interest that's charged over time. Bank-issued cards often have an initial charge.

"Consumers are going to find out that their gift cards are not worth as much as they thought they were," said Gail Hillebrand of the consumer advocacy group Consumers Union of U.S. Inc.

Her group supported legislation passed in California eliminating virtually all gift card fees effective January 2004. That state already has a law that keeps cards from having expiration dates. In New Hampshire, cards $99 or less can be used anytime, while in Massachusetts, any gift card is now valid for up to 7 years.

Retailers say reactivation and other fees help cover costs to maintain the systems that track card credits, and are fair because the costs are charged only to consumers who delay.

But they are sensitive to the growing chorus of complaints. Several major chains, including Sears, Roebuck and Co.,Barnes & Noble Inc. and J.C. Penney Co. Inc. have eliminated fees in time for the holiday season. Earlier this year, 18 national retailers -- including Bloomingdale's, Toys "R" Us and Target Corp. -- agreed to replace customers' lost, stolen or damaged gift cards.

Still, there are plenty of companies with fees or restrictions. A sampling:

l Wal-Mart Stores Inc. charges $1 fee per month after 24 consecutive months of inactivity.

l Barnes & Noble Inc. will replace damaged cards, but not stolen or lost cards. In October, the retailer eliminated the $1.50 monthly fee it charged after 12 months of inactivity.

l Simon Properties-Visa gift card program has an initial fee of $1.50 and a service fee of $2.50 per month beginning with the seventh month. The initial fee is still low compared to Visa's other members, which can go as high as $7.

Still, the cards' popularity is expected to keep growing. C. Britt Beemer, chairman of America's Research Group, based in Charleston, S.C., said gift cards have become the "grand slam" of the 2003 holiday season.

According to Bain & Co., card sales for 2003 will total anywhere between $42 billion to $45 billion, up from $36 billion to $38 billion in 2002. Exact figures are hard to determine.

Michael Brown, a retail operations specialist at Kurt Salmon Associates, estimated that 10 percent to 15 percent of the value of the cards are never used.

Hillebrand, at Consumers Union, knows how gift-givers can prevent that.

"Write a check," she advised.

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