Givers love gift cards, but receivers not so much

Trend: The No. 1 choice in holiday giving is losing its luster among consumers and drawing concern over fees and restrictions.

December 22, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Over the years, Matt Young has received a fair share of holiday gifts that made him groan - the compilation CD of odd guitar music the year he learned how to play, the not-so-hip jumpsuits from his grandparents, the pinkie ring from his well-intentioned if clueless aunt.

But even those bombs don't compare to the couple of hundred dollars in pesky gift cards that are unused and gathering dust in the University of Maryland senior's bedroom in College Park.

"I carried them around with me in my wallet for a month after Christmas," the 21-year-old engineering student said. "When I didn't use them, I just tossed them aside."

Young might be in for a bad surprise under the tree this year. National retail experts said gift cards are the No. 1 choice of givers this holiday - surpassing cash and last year's top preference, clothing - and the total sold is expected by some to best the $45 billion spent on them last year.

Yet many consumers are, like Young, increasingly becoming nostalgic for those once disdained jumpsuits and compact discs.

"Gift cards are really getting a bad rep," said Britt Beemer, founder of America's Research Group, a Charleston, S.C., marketing firm that studies consumer behavior. "They really are the goose that laid the golden egg for retailers, but someone out there is killing the goose."

Between consumers who never use their cards and growing concern over retailers who stick excessive fees and restrictions on them, these gifts are not just losing their luster, they're also drawing government scrutiny.

Last month, three New England states sued Simon Property Group Inc., the country's largest shopping mall owner, alleging that multiple fees and expiration dates on its cards violate consumer protection laws.

Over the past year, a growing number of states have similarly tried to regulate the industry by drafting consumer protection laws, including an unsuccessful attempt by Maryland legislators last session. As a result, more and more retailers are starting to eliminate many restrictions on cards to satisfy annoyed consumers.

Still, two advocacy groups, Consumer Federation of America and Consumer's Union, advised shoppers this month to be wary of buying cards.

Running counter to several retail studies that say gift-card giving will increase this holiday - 64 percent of consumers told Deloitte & Touche in a survey that they expected to shower someone with one this season - some smaller surveys indicate the beginning of a backlash.

A weekly survey conducted by Beemer's firm after the November elections showed that 10 percent fewer Americans said they would give gift cards this year compared with last year. Similarly, in August, a survey by Georgia-based Synergistics Research Corp. showed that 19 percent of 1,000 consumers surveyed said they would stop buying gift cards because of hidden fees. And 58 percent said they would be more selective about buying cards without such restrictions.

Such intent might not have put a dent in gift-card sales yet, but consumer experts hope that shoppers are wising up to the potential pitfalls.

The main downside is waste: Between 5 percent and 10 percent of gift cards are never redeemed because of confusing expiration dates, copious fees, restrictions or forgetfulness. About 20 percent of recipients never tap the full value of a card, experts said.

That translates into gift-givers spending billions of dollars every year for, essentially, nothing.

"Gift cards are a fabulous marketing program for retailers," said Jack Gillis, director of public affairs for Consumer Federation. "There's a guaranteed rate of return. Gift cards bring customers into your store. Oftentimes, the entire amount on the card will not be recouped. A lot of them don't allow cash back so the customer ends up spending more than the amount on the card. Chances are, it won't even be spent. Losing a gift card is like losing cash in most cases. If you lose a credit card, you have some type of recourse. If you lose a gift card, you're out of luck."

Then how to explain the disconnect in gift card popularity?

Easy. People don't like wasting money on unwanted gifts.

Following a rising national trend, consumers are searching for more meaningful, personalized gifts, said Robbie Blinkoff, a social anthropologist who heads Context-Based Research Group in Baltimore, which studies consumer behavior. Call them "prosumer" products that satisfy the producer and consumer in all of us.

To understand, consider the popularity of scrapbooking, book clubs and iPods nowadays.

"In each case, people are given control of the product," Blinkoff said. "You determine what you consume because the product is what you put into it. With gift cards, you're giving a person the experience. They get to choose the perfect gift themselves."

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