SHOPPING The other kind of holiday card

Gift cards are a booming business, but make sure to read the rules.
CBS MARKETWATCH
SAN FRANCISCO -- Cruise through any checkout line this holiday season, and you'll likely find an explosion of colorful, flashy gift cards crowding out candy among the impulse items.
A fast-growing number of retailers and malls are doing away with paper gift certificates in favor of gift cards, which are cheaper, easier to track and more resistant to counterfeiting.
Gift-card sales are expected to hit $40 billion this year, up 33 percent from $30 billion in 2002, said Jay McIntosh, America's director of retail and consumer products for Ernst & amp; Young in Chicago. They are expected to make up 5 percent of total retail sales this season.
"People are more comfortable with them, and retailers are becoming much more aggressive about promoting them," McIntosh said. "Retailers just love them because consumers typically spend 15 to 20 percent over and above the card's value."
Dressing them up
Major retailers such as Macy's, Circuit City, Best Buy and Home Depot present them in a bevy of designs and denominations. Some dress them up in CD jewel cases and other creative packaging, and Costco offers an electronic version that brightens recipients' e-mail inboxes.
Supermarkets and restaurants now hawk various stores' gift cards, and malls sell universal gift cards for use at participating shops, said Kate Delhagen, a retail analyst at Forrester Research.
"It's like a light bulb went off for the industry," Delhagen said. "Consumers do the work of buying them, the retailer has no downside, and it's good for business."
Despite their advantages, many gift cards carry expiration dates or maintenance fees, which allow a retailer to debit a certain amount of value each month after a designated period of inactivity.
Some states prohibit vendors from setting an expiration date, but consumers are wise to read the fine print to prevent any Scroogelike surprises, said Bill Apple, a senior editor with Consumer Reports.
California, for example, will prohibit expirations as of 2004, McIntosh said.
Nearly half of consumers are expected to buy gift cards this holiday season, up from 46 percent last year, said Marshall Cohen, chief industry analyst at the NPD Group, a market research firm in Port Washington, N.Y.
Advantages
Gift-givers squeamish about choosing something that may not fly with their recipients are hedging their bets, he said. "People are telling us they're going to give a gift and also a gift card."
At Circuit City, gift cards are sold both on location and on the store's Web site, where consumers also can track their balances. The cards can be used at any of the chain's stores, but those who don't use them within two years of purchase are subject to a $2 monthly service charge if state law allows it, spokesman Steve Mullen said.
The cards, which track balances with a magnetic strip or bar code, often succeed in bumping up consumer purchases, Delhagen said. "The person who redeems it is almost guaranteed to spend more money in the store."
Of course, a steady supply of people who forget to use them or lose them boosts retailers' profit margins as well. About 10 percent of gift cards are never redeemed, Apple said.
Consumers may not want to wait too long to cash in. They can get more bang for the gift-card buck during post-holiday sales, Cohen said. "You can buy twice as much merchandise the day after the holiday."
Know the rules
Consumers are wise to know the rules before plunking down their dough, Cohen said. "Before you just grab a card off the shelf and say 'Put $50 on it for me,' find out about fees, expiration dates and maintenance charges."
National chain stores are less likely to attach expiration dates than mall cards, he said. "That doesn't mean you can't go and get them to extend the time, but the consumer has to make the action to do so."
Other stores may deduct fees for rolling over credit into the next year, Cohen said.
Consumers also can protect their cards from accidental loss by recording the tracking numbers and keeping the original receipt should they lose the card and have to verify the account with store managers, Apple said. Many stores have toll-free fraud lines to report missing or stolen cards.
Despite their image as being somewhat uninspired, gift cards can spare the recipient the pain of faking gratitude for items that really miss the mark, McIntosh said. "It's got to be better than the socks my grandmother used to give me."