This holiday season, just say no to gift cards

Herb Weisbaum • Profile • E-mail

For the first time since they became so popular, gift cards sales are expected to drop this year – anywhere from 6 to 9 percent. The tough economy is partly to blame; consumers need to trim their holiday spending.

But some shoppers plan to avoid gift cards so they don’t get stuck with worthless plastic, which can happen when a store goes out of business.

Despite that, the National Retail Federation says gift cards are the most requested gift again this year. Holiday shoppers are expected to spend almost $25 billion on them.

Ellen Davis, NRF vice president, insists consumers have nothing to worry about. “Most of the retailers who are here today will be here next year at this time and their gift cards will be perfectly valid.”

The risk is real
Retail gift cards are extremely convenient: You never give the wrong size or color because the recipient buys whatever he or she wants. But clearly, there is some risk involved. These colorful pieces of plastic are not the same as a credit or debit card. A gift card can lose its value overnight if the retailer goes out of business.

Here’s a reality check. According to research by the TowerGroup, gift card holders lost more than $100 million dollars this year. The bulk of these worthless cards came from a few big stores that filed for bankruptcy: The Sharper Image, Linens ‘N Things and Bombay Company. But this figure also includes many smaller stores across the country that went bust.

What's on your wish list? The National Retail Federation says more people than ever want gift cards this year. Nearly 55 percent of those surveyed said they would like gift cards. Here are the main reasons shoppers plan to buy fewer gift cards this holiday season: — They feel the cards are impersonal (22.7 percent). — They would rather stretch their dollar by buying merchandise on sale (10.9 percent). — They do not want to buy a card with expiration dates or added fees (9.8 percent). Only 3 percent of those questioned for the NRF survey said they are worried the retailer will go out of business.

When Circuit City filed for Chapter 11 a few weeks ago, it asked and received court permission to honor its gift cards. Circuit City continues to sell them. Consumer Reports advises against buying gift cards from a distressed retailer. “Just because they honor gift cards today, doesn’t mean they will honor them tomorrow,” cautions assistant finance editor Anthony Giorgianni.

Remember: there’s no guarantee a company in Chapter 11 bankruptcy will survive. And as part of its reorganization it may close stores near you. What if there’s no brick-and-mortar store to go to and the company doesn’t accept gift cards online? What will you do then?  In bankruptcy court, gift card holders are unsecured creditors. They can file a claim, but they go to the back of the line.

Gift cards from credit card companies
With all the news coverage about retail gift cards, some people may decide to play it safe and switch to gift cards from Visa, MasterCard, Discover and American Express. The TowerGroup expects sales of gift cards from financial institutions to grow by 5.6 percent this holiday season, even though there’s always a charge – usually $3.95 to $4.95 above face value – to buy them.

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