December 11, 2005
They rose to popularity as the gift that couldn't go wrong, but a raft of Web sites are here to tell you that many of those gift cards turned out to be a bad fit after all.
Instead of buying themselves a nice little something, thousands of people are selling unwanted gift cards at a discount, swapping them like baseball cards and buying them up to use for their holiday shopping.
It has the air of a mini stock market: On a recent day on Cardavenue.com, a $200 Best Buy gift card was going for $175 with less than a minute left to bid. Another user wanted to trade a $25 Gap card for one from eBay, Marshall's, Target, clothing store Guess or home furnishings store Tuesday Morning. An enterprising poster on Craigslist was hoping to swap $360 in gift cards from several retailers for an iPod - preferably one that can play video.
The savings may be hard to resist, but there are risks. There's no way for buyers to be certain how much money is on the card, for example.
Gift cards are big business, and they're designed so people can give them away easily. The National Retail Federation, an industry trade group, estimated that gift-card sales this holiday season would hit more than $18 billion, predicting a 6.6 percent increase over last year's record high. Total gift-card sales this year are expected to reach $66 billion, according to Giftcertificates.com.
'Aftermarket' for cards
But a report by TowerGroup, a research and consulting firm, estimated that 12 percent to 14 percent of those cards are likely to go unredeemed. That has created a growing "aftermarket" for the cards and opened the door for people such as Mike Kelly.
About two years ago, he and his wife, Mary Jane, realized they had about a dozen gift cards they would never use lying around. Some were for restaurants at which they never ate; others were well-intentioned but misguided wedding gifts.
"They sort of represented a stack of things that were going to collect dust," Mike Kelly said.
And the cards were worth roughly $700, making them very expensive dust bunnies.
That's when the couple came up with the idea of Swapagift.com, where cards are bought, sold and traded. The site boasts 15,000 registered users. Traffic is about 1,000 visitors on a typical day and jumps to several thousand during the holiday season. Kelly estimated that about half of all transactions occur between November and the end of January.
Other Web sites offering similar services include Kister's sites, which he launched in August, as well as Cardavenue.com and Certificateswap.com. Typically, sellers on the sites pay a small transaction fee, while old standards such as Craigslist and eBay feature free gift-card swaps and resales.
The cards range from luxury retailers to video stores. There are Barneys New York, Tiffany & Co. and Bloomingdale's. Home Depot and Lowe's. Blockbuster and Netflix. All at bargain prices.
As industry groups point out, however, opportunities for fraud extend beyond knowing a card's true value. Some cards come with "dormancy fees" that kick in if they aren't used in a certain amount of time. There are even concerns that cards may be stolen or used to launder money.
"It's a gamble," said Evan Johnson, who works in the Montgomery County Division of Consumer Affairs, which recently released a report on gift cards. "We would advise people to be very careful about that kind of trading. ... I'd be willing to bet that some people are getting stiffed in these transactions."
Site operators say they have tried to build in checks. Instead of allowing trading, Kister buys the cards from individuals at a discounted rate and issues them checks from Giftcardbuyback.com. He validates the cards and sells them on his other site, he said.
Robert Butler, the head of Cardavenue.com, said he validates cards listed at more than $100 and has live customer service. If a sale goes awry - say, a $50 gift card turns out to be worthless - the company will cover the value up to $100.
Hani Durzy, an eBay spokesman, said the company has agreed to cap the value of gift cards that can be auctioned at $500. It also limits transactions to one per week for each seller, attempting to prevent the sale of stolen cards without limiting legitimate users who got stuck with an unwanted present.
"We want to allow people to buy and sell gift cards because they're perfectly legal to buy and sell," he said. More than 10,000 certificates and coupons were for sale on eBay on a recent afternoon, including several for a "mystery amount" at Wal-Mart.
The NRF said that stores have mixed reactions to the practice. They're able to cash in on sales they may not have gotten otherwise, but if a card turns out to be a dud, shoppers tend to blame the retailer - not the person who sold it to them, said Scott Krugman, the group's spokesman.
"When it takes them out of the equation," he said, "they can't guarantee the product."
A new business
Gift-card-resale sites are still in their infancy. TowerGroup estimated in its February report that only about 4,500 cards were listed online in 2004, not including eBay or Craigslist, worth a total of about $279,000.
Still, Kelly said that traffic at his site had doubled several times since its launch in 2003 and that he expected similar results this holiday season. Cardavenue.com's Butler said the premise was as simple as Economics 101.
"It's basic supply and demand," he said. Buyers and sellers "just start wheeling and dealing."
But the psychology behind the practice may be a little more complicated. A gift card is still a gift, after all, and for some, that can mean at least a twinge of guilt even as they angle for the highest bid.
"Yikes! I can't be quoted," wrote one seller in an e-mail. "My friend will know I sold my gift card on Swapagift.com."
Originally published at: http://www2.ljworld.com/news/2005/dec/11/consumers_trading_unwanted_gift_cards/