By  on July 8, 2009

How times have changed.

The gift card, a symbol of conspicuous consumption before the recession, has become an indicator of economic hard times.

Consumer anxieties are playing out in fewer gift cards being purchased this year, less dollar-value being stored on the cards that are bought and a decline in the number of people buying them.

Shoppers are seeing gift cards differently as the recession creates disarray in personal finances and prompts concerns about whether certain stores will stay in business after a spate of bankruptcies and the liquidations of retailers such as Fortunoff, Steve & Barry’s, Mervyns, Goody’s, Gottschalks, Circuit City, Sharper Image and Linens-N-Things.

Once a license to indulge, gift cards are increasingly being given for practical purchases like phone bills, food and gasoline.

“The everyday-ness of gift cards from, say, AT&T or Target, becomes a great value,” said Wendy Liebmann, president of WSL Strategic Retail. “At the beginning, that was seen as an insult. Now, it’s seen as a great gift.”

At Wal-Mart stores, shoppers have been “buying more groceries with gift cards” since Christmas, said spokesman John Simley.

In a survey of 9,000 adults by BIGresearch in January, the average respondent said they bought three gift cards this past holiday, down from four in 2007. They spent an average of 15 percent less for these cards, or $142, compared with $166 a year earlier. And fewer were buying them: 52 percent of shoppers, compared with 57 percent.

“We see this decrease continuing, based on talks with some of the issuers,” said Stacy Janiak, vice chairman and U.S. retail practice leader at Deloitte. “The average number of cards being bought and dollar amounts being put on them both have dropped since holiday. According to the big chain retailers, there hasn’t been a big increase in gift card redemption rates. I was expecting to see higher redemption rates this season.”

At stake is some of the estimated $59.9 billion in value stored on the prepaid cards in 2008 — down from $70 billion in 2007 — and the $2.7 billion people said they would put on the plastic this spring as presents for Mother’s Day and Father’s Day, according to reports from the National Retail Federation and TowerGroup.

“Historically, our gift card sales correlate to the number of trips guests take to our stores,” a Target spokesman said. “This year is not significantly different, with gift card sales reflecting the general trends in the overall sales environment.” Target’s sales were almost flat in the first quarter ended May 2, edging up 0.2 percent to $14.83 billion.

Another factor holding down redemptions is the common experience of a card holder needing to spend more than a card’s value to buy an item, marketing experts said. In a period of treasure hunts for value and personal savings rates climbing to an average of 6.9 percent in May from 5.7 percent in April and 4.5 percent in March, specific gifts are sometimes considered by recipients to be worth more than gift cards.

“Previously, gift cards felt like a gift,” said Ron Rentel, president of consultant Consumer Eyes. “Now they might seem more literally like money. People are in savings mode. They seem too overt for the time.”

In addition, more shoppers are waiting to accumulate additional cards and combine them to create greater value in a particular venue. Others forget they have been given the cards after tossing them into a drawer or wallet.

Almost half the 13,000 shoppers polled in Deloitte’s Annual Holiday Survey said they were going into the 2008-’09 winter season with about six unused gift cards — twice as many as in 2007. Their top two worries were: “I’ve had at least one card expire before I could use it” (cited by 24 percent) and “I am concerned about the store closing before I can use my card” (23 percent).



In 2008, about $6.4 billion sat unused in stored value cards and more than $100 million in gift card value was “compromised” in the bankruptcies and liquidations of Linens-N-Things and Sharper Image, said Brian Riley, director of research at TowerGroup, a MasterCard unit that publishes a gift card study each fall. They became worthless at Linens-N-Things, and were restricted at Sharper Image, with provisions like limits on card amounts that could be applied per item or store locations where they could be used.

Riley bought a gift card at Linens-N-Things in May 2008 and said he was “shocked” that no one warned him the card could be worthless, considering the now-defunct chain of more than 500 stores was filing for bankruptcy protection that day.

“Just for fun, I went in on the day I knew they were filing Chapter 11, and no one tried to stop me from buying it,” he recalled. “One reason I bought it was to see if someone would say, human to human, that this card will be no good.”

When it takes effect Aug. 22, 2010, Title IV of the CARD Act signed by President Obama in May will prohibit the expiration of gift cards in less than five years from their date of issue. It will allow inactivity and service fees to be charged to the cards only after they haven’t been used for 12 consecutive months.

“We’re advocating fees of no more than $1 a month and only on cards with a value of $5 or less,” all but eliminating fees on gift card value, said Michelle Jun, a Consumers Union staff attorney, who noted “exact fees” were not set by the Credit Card Accountability, Responsibility and Disclosure Act.

Bills being considered in three state legislatures — New York, Massachusetts and Connecticut — would require retailers to maintain “a trust in which funds would be held to cover outstanding gift cards in the case of a bankruptcy,” Jun said.

“With a lot of negative press, especially when Sharper Image did not honor its gift cards, [retailers] appear to be growing more concerned,” she added, when asked about Eddie Bauer’s plans to honor its outstanding cards despite filing for bankruptcy on June 17. (An order issued in Delaware Bankruptcy Court granted Eddie Bauer permission to keep accepting the cards as it reorganizes, a spokeswoman for the retailer said.)

“The lack of confidence in stores was significant after a string of Chapter 11’s, starting with Sharper Image,” Riley said. “We believe there continues to be a lot of caution there.”

Consumers’ worries also could be heightened by purchases of fraudulently obtained gift cards that are sold by third parties at flea markets, online auction sites and elsewhere for prices higher than the value stored on them. Criminals typically buy the cards with funds from stolen credit cards or stolen merchandise they’ve fenced. The fraudsters then use those stored-value cards themselves and sell them to unsuspecting shoppers at prices that misrepresent any value left on the cards. The victims have no recourse.

Joseph LaRocca, the NRF’s senior asset protection adviser, said gift cards, denim jeans, cosmetics, DVDs, over-the-counter medications and infant formula “are things that can be resold easily in anonymous commerce on the street or online.”

In its recently published “2009 Organized Retail Crime Survey,” NRF reported 57 of 115 big chains, including department, discount and specialty stores, saw online fencing activity rise during the 12 months ended in May. Stolen gift cards and-or merchandise was “identified or recovered” by 60 percent of those surveyed, versus 68 percent, in 2007. Identifying marks like laser-printed brand names, price tickets and serial numbers recorded by retailers aid in the recoveries, LaRocca explained.

“Law enforcement has admissions or has documented where the thefts took place,” LaRocca said, “and [this information] is entered into evidence, in many of the large organized retail crime cases.”

To unlock this article, subscribe to WWD below.

load comments
blog comments powered by Disqus