Retailers look to gift cards to boost sales

Jan Sandberg of Minneapolis has been using gift cards more and more over the past few years. She says they are especially convenient to use when she makes the big trip down to St. Louis, Mo. over the holidays to visit her parents.

"We travel, we often fly down here. This year we happened to drive, but when I'm flying, it's often nice to have a gift card. They're just easier to carry."

Sandberg says restaurants like Buca and Applebees, and retailers like Target and Bed, Bath, and Beyond are some of her favorite places to pick up a gift card.

Gift cards are driving a lot of growth this holiday season, according to many industry observers. Burt Flickinger is managing director of Strategic Resource Group, a research firm in New York. He is seeing a lot of good trends with gift cards this year. He says two-thirds of consumers are using them this year, compared to one third last year. That is translating into some big revenues.

"Gift cards will be about 30 billion, up about 8 billion over the previous year and gift cards will get the new year off -- January and early February -- to a good start."

The National Retail Federation's estimate is somewhat more conservative, but the organization's Scott Krugman says he also thinks gift card sales are probably giving a big boost to retailers. However, he says it is unclear whether retailers incorporate their gift card sales into their overall holiday figures.

"The raw data that we're seeing, we're not sure how they account for gift cards. That's why we like to see the government data come out because we'll know for sure how many gift cards were redeemed and count for the holiday season. But the more popular gift cards become, and the more holiday sales start shifting into January -- at what point should retailers count January in their holiday sales field?"

A spokesperson at Minneapolis based Target declined to comment on what role gift cards play in holiday sales. A couple days ago, the discount retailer said December sales at stores open at least a year will range from a 1 percent drop to a 1 percent increase -- lower than the company's earlier forecast of a 5 percent gain.

Best Buy spokesman Brian Lucas also declined to comment on how gift cards fit into holiday sales. But he says the company is eager to get gift card holders into the store.

"We're really focused on capitalizing on the excitement coming out of the holidays and getting people who have gift cards in their pocket to come in and complete the gift themselves or get other things they didn't get the first time. We know that our customers are really focused on getting accessories for what they got -- so accessories for iPods, .mp3 players and entertainment software, music, movies and games are really big right now."

Gift cards do have some downsides for retailers. A gift card is a a liability and does not count as a sale until it is redeemed.

Scott Krugman of the National Retail Federation says if the card goes unused for a few years, some states have laws that shift the money from the gift card sale to the state's treasury coffers as unclaimed property. Krugman cites a study by the research firm Tower Group says that $8 billion of the total $100 billion sold in gift cards does not end up in retailers' hands.

"This is money that retailers would desperately like to count towards their annual sales, but they're prevented to because of state regulations."

Krugman says retailers do not lose that money to states, however, if unredeemed cards do expire.

In Minnesota, gift cards cannot expire. That is because of a new state law. Twenty-nine other states also have laws restricting expiration dates in some fashion. Minnesota also prohibits charging any fees for gift cards.

But as Jan Sandberg's gift-card loving family found out, one has to be careful with the thin little gifts for other reasons.

"My niece got a gift card from her brother and she put it in her purse -- so she said. We spent one and a half hours tearing apart the gift wrap in the room trying to figure out where it had gone to. It was not there at the end of the evening."

In cases like that, gift card holders should be familiar with the fine print to know whether a card is replaceable.

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