Gift card sales booming during the holidays

Cheryl Knauer has a restaurant gift card in mind for her in-laws, a massage gift card planned for another family member and intends to pick up cards in smaller dollar amounts to Chick-fil-A and Starbucks for kids' stockings and teachers' gifts.

The Parkville mother of three told family members seeking ideas for her hard-to-shop-for 11-year-old to buy him gift cards too — maybe from Target or GameStop. Knauer, director of media relations at McDaniel College in Westminster, said she's feeling less rushed this Christmas season because she can easily grab the gifts, even at the last minute.

Unlike giving cash, which seems impersonal, Knauer said, "I feel like there is some thought in choosing what gift card to give."

Finding nearly endless choices, consumers are embracing the idea of gift cards, making the presents people will receive this holiday season just as likely to come in an envelope as in a box.

Gift cards continue to top lists of most popular purchases this season, spurring billions in sales for merchants. The category is growing quickly and moving toward a day when, some believe, the plastic cards could be replaced by electronic ones.

Cards that can be used to buy at stores, restaurants, gas stations, spas, movie theaters and other outlets have become big business, with purchases expected to reach $110 billion in the United States this year, according to estimates from CEB TowerGroup. That's a 10 percent jump over gift card spending in 2011, and TowerGroup analysts expect similar growth through 2015, when sales are expected to leap to $138 billion.

More than four in five shoppers — 81 percent — plan to buy at least one gift card this season and spend, on average, $156.86 for cards, a survey by the National Retail Federation showed.

That per-person average spending is the highest in the survey's 10-year history, with total holiday gift card spending expected to amount to $29 billion. Nearly 60 percent of those polled in the NRF survey said they'd like to get gift cards this year, a slight increase from 2011.

"It lets you give choice to someone," said Margaret Mackenzie, CEO of Plastic Jungle, a gift card exchange website. "If I like shopping at a particular store and think you will too, I'm not going to try to pick out your sweater for you."

For retailers, "gift cards do stimulate purchasing," said Brian Riley, CEB TowerGroup's senior research director. "Private-label cards are a good item for retailers or restaurants because it captures the funds."

The secondary market for unused or unwanted cards is booming too, capitalizing on the estimated $30 billion in unredeemed gift cards in circulation. Plastic Jungle has bought and sold more than $50 million in gift cards in just the past few years, Mackenzie said.

The cards that are most in demand, according to a top 20 list put out by Ellicott City-based GiftCardRescue.com, another card exchange site, ranked Walmart as No. 1, followed by Target, McDonald's, Amazon.com, Home Depot, Lowe's, Costco, Subway, Visa and, rounding out the top 10, eBay.

The store-brand cards, for purchases at specific retailers, usually have no fees and never expire, while general purpose cards from Visa, Master Card and American Express can be used anywhere those cards are accepted but charge fees to the buyer.

Several new gift card offerings have emerged this year, including cards being offered as incentives when consumers buy a certain amount of merchandise or store gift cards, experts said.

Plastic Jungle has formed a partnership with CVS Pharmacy, in which consumers can trade unused gift cards— typically for 80 percent to 92 percent of the value — for a CVS gift card. The trade can be done on the Plastic Jungle site or at CVS stores.

And Starbucks began selling a premium Starbucks card on Thursday worth $450 and loaded on a steel card. The coffee chain expects to sell out of the 5,000 cards, said Linda Mills, a spokeswoman.

Starbucks, which sold an average of 44 Starbucks cards a minute over the Black Friday shopping weekend — a record for a single weekend — expects one out of every 10 people in the United States will get a Starbucks card this season.

More than ever, consumers this year will find no shortage of outlets for gift cards.

"We have seen in the last few years that they're available much more widely," said Claudia Lombana, PayPal's shopping specialist. "It used to be only a few different retailers, but now when you go in a grocery store you see dozens and dozens. And the number of retailers participating where there are gift cards sold has grown."

Giant Food, the Baltimore area's biggest grocer, has sold other retailers' cards for more than a decade. Giants now have an assortment of more than 100 brands, including iTunes, restaurants, stores and general-use cards. Most of Giant's gift card sales occur during the five weeks leading up to Dec. 25, with general-use cards from American Express, MasterCard and Visa the most popular, said Jamie Miller, a Giant spokesman.

"Giant continues to grow the assortment of gift cards based on consumer demand," Miller said.

The future likely will bring more gift-card buying, much of it in virtual or digital cards that can be sent, stored and used electronically, online or through mobile devices, experts said. Digital cards now represent a small portion of the market

"We believe strongly that gift cards are going to go digital," said Plastic Jungle's Mackenzie. "People say there always will be physical cards because people want to hand each other a gift, but it is our belief that as the market matures, the benefits of being able to use digital cards will overcome being able to hand someone plastic."

Those benefits include immediacy of use, not having to wait for a card to be mailed and not needing go out to buy one, she said.

"You'll be able to keep a gift card in your digital wallet," Lombana said. "Instead of keeping track of a gift card … you'll be able to actually store a gift card in a wallet in the 'cloud' and have it accessible on your smartphone."

That's possible now for Starbucks card holders, who can enter a gift card code into a Starbucks app on their mobile phones, she said.

Another change on the horizon could be more scrutiny from regulators as the gift-card market continues to grow — along with opportunities for fraud, Riley said.

Last week, Attorney General Douglas F. Gansler warned Maryland consumers about a text message scam telling recipients they won a gift card to a well-known store, typically for $500 or $1,000. The scam sends the recipient to a website to enter personal information, which could lead to identity theft.

Riley said consumers need to know that gift cards don't come with the same protections as credit and debit cards. Consumers are out of luck if they lose a card, if a sales receipt for a card shows a higher amount than that loaded on the card or if a merchant goes out of business.

"The best thing to do with a gift card when you get it is use it," Riley said. "They were never intended to be a saving product."