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Forgotten gifts

Holiday shoppers are expected to buy $25 billion of gift cards this year, 34% more than in 2005, but they often go unused

December 17, 2006|Abigail Goldman | Times Staff Writer

Deborah Carabet can't seem to find a way to spend $800.

The money is in the pocket on her car's driver-side door, spread among a slew of gift cards. She's had some of them for years, and therein lies the problem.

"It can be fun to get them, but then I forget about them," said Carabet, 46, who lives in Westwood. "Or I walk into the store, I look around, I don't know what I want, and I leave."

That's why Carabet, a chef and nutritionist, guesses that she has $45 left on a card from Williams-Sonoma, about $75 from Sur La Table and perhaps $75 to $100 on a Nordstrom card from last Hanukkah. It's been so long, she can't remember exactly how much it's worth.

Shoppers across America report the same problem: Millions of gift cards languishing in envelopes, drawers and wallets -- some new, some with leftover balances. Some get thrown out.

In the last year, some of the nation's largest retailers began reporting how much they've profited as a result.

Last winter Best Buy Co. reported a $43 million gain in fiscal 2006 from cards that hadn't been used in two or more years -- 3.8% of its earnings of $1.14 billion. Limited Brands Inc. recorded $30 million in 2005 revenue because of unredeemed cards, or 4.4% of its $683 million in net income.

Nonetheless, the 2006 holiday season is likely to see record sales of gift cards. The National Retail Federation, a trade group, estimates that shoppers will buy $24.8 billion of cards, up 34% from last year.

Shoppers are buying more of them from more places, including drugstores, jewelers, spas and even supermarkets. They are buying cards with higher dollar values -- some over $100, and more cards are being packaged with accessories to make them look less like plastic money.

But about 6%, or $4.8 billion, of this year's giant gift card trove will go unused, estimated Laura Lane, vice president of unclaimed property services for Keane Co., a compliance and risk management consulting firm.

Consumer Reports puts the figure even higher, estimating that 19% of those who received gift cards last year had not used them because the cards were lost or expired.

"It can add up to significant dollars," Lane said. "I think the message to consumers is: use it or regift it."

Consumers spend their way through some cards faster than others.

Supermarkets and gas stations have close to 100% redemption rates, said Bob Skiba, who runs the gift card division of Ceridian Corp.'s Comdata gift card division, based in Louisville, Ky.

Cards from clothing and department stores, however, can wind up in the forgotten pile, what retailers call "breakage."

"You don't have to buy a sweater every day, but you do have to eat and fill up your car," Skiba said. "Where you can delay the purchase, or it's at your convenience that you make the purchase, we see the breakage."

Retailers say they would prefer that customers use the cards, and for good reasons.

"They have money in their pockets that's pointed to our store," said John Fleming, Wal-Mart Stores Inc.'s marketing chief and a former Target Corp. executive.

Even better, he said, wooing customers with gift cards doesn't require the usual spate of discounts or promotions.

In addition, a retailer can't report revenue from a gift card when it is sold. The revenue is recognized as the card is used or -- thanks to new guidance from the Securities and Exchange Commission -- after it has gone a long time without being used. The SEC's clarification prompted several companies in recent months to report -- many for the first time -- gains from unused cards.

Gift cards also have changed the way merchants view January.

"It used to be the week after Christmas was really about clearance," said Wal-Mart's Fleming. "Now, with the trend toward gift cards, it's a completely different selling opportunity. It's not just about clearing out inventory."

One reason for the shift: Research shows that most consumers will spend more than the card is worth, using their own money to add as much as 5% to 75%.

"More often than not, they have a $20 gift card and they see a $35 dollar sweater," said Richard Giss, a partner in Deloitte & Touche's consumer business division in Los Angeles. "And they say, it's really only a $15 sweater, because that's all I have to pay."

Some shoppers simply hate the whole idea. "I would never buy one for anyone, because I wouldn't want someone to think I didn't take the time to get a more thoughtful gift," said Jennifer Tate, 29, who was scouring the Westfield Century City mall for gifts with her mother and Lucky, a 6-year-old pit bull. "I'd be sad if I got one from my family. It would be like getting cash," she said.

But since the lowly paper gift certificate evolved into the modern, shiny, plastic gift card, it has won over tens of millions of consumers.

Two-thirds of shoppers told American Express pollsters that they planned to buy gift cards this year for groceries, gasoline, restaurant meals, department store wares, concert tickets or home furniture.

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