In Canada, the retail sector is expected to bring in just under $59 billion in 2006 holiday sales, according to a study by accounting firm Ernst and Young. (CBC)
Retailers love them and consumers like getting them. According to a survey by American Express, last year, gift cards were second only to clothing as the most frequently given present during the Christmas shopping season.
A December 2006 Statistics Canada survey found that as recently as 2003, just over half of the country's major retailers were in on the gift card game. Two years later, that number had jumped to 82 per cent. The increase was even more pronounced among clothing retailers. Just over a third offered gift cards in 2003 while 79 per cent carried them in 2005.
Now it's hard to find any retailer who's not issuing gift cards. Want to give somebody gas? Give them a $25 card from your favourite service station chain. Via Rail offers the gift of travel, in just about any denomination you want.
The most successful gift card in North America may be the one offered by Starbucks. The company estimates that 10 per cent of all the caffeine hits served up by its North American baristas is paid for by gift cards. It's also the only retailer that will let you use your gift card to buy a gift card for someone else.
About 96 million Starbucks cards have been activated since they were launched in 2001 — and customers have reloaded those cards more than 38 million times.
Just in time for the 2007 holiday season, Tim Hortons unveiled its own line of gift cards.
The priciest gift card around may be the $100,000 Four Seasons Gift Card. When the chain got into the gift card game in 2005, it was available in denominations up to $1,000. But cards worth $2,500 and $5,000 were quickly added.
A survey by the U.S. National Retail Federation last year suggested that eight out of 10 people would include gift cards among their holiday shopping purchases. The main reason: convenience.
But gift cards have come under increasing scrutiny in recent years. The Consumers' Association of Canada says people should avoid gift cards because too often consumers are just giving money to retailers and getting nothing in return.
The association's president, Bruce Cran, estimates that about one in four gift cards goes unredeemed, and "they're a very poor proposition for consumers."
"In the event that you can't give a gift, give cash, that's what you should do," Cran said, adding there's an additional risk of a store going bankrupt before a card is used.
According to market research firm NPD Group Canada, Inc., 40 per cent of adults received at least one gift card last Christmas. But as many as 40 per cent of the cards had not been redeemed by March. That's money in the bank for retailers — and money sitting around doing nothing for consumers.
The American research firm TowerGroup estimated the value of unused gift cards in the U.S. for 2006 at $8 billion. The firm said electronics retailer Best Buy reported a $43 million gain from gift cards that were unlikely to be used.
In its December 2007 issue, Consumer Reports magazine cited those figures as it warned people to tread carefully with gift cards. It also cited its own survey that estimated that 27 per cent of gift cards were not cashed in last year, up from 19 per cent a year earlier. More than a third of the people surveyed said they either forgot about their cards or lost them — or that the cards had expired. Another third said they couldn't find anything they wanted to spend their gift card on. Almost 60 per cent said they didn't have the time to shop.
What's the difference between gift cards and gift certificates?
It's more than just plastic vs. paper. While both products are sold in pre-set denominations, you may get cash back if your gift certificate is worth more than your purchase.
Pick up a pair of $45 pants with your $50 jean store gift certificate and you can go down the street and buy lunch at the doughnut shop with your change. Not so with a gift card. Buy something for $45 with the $50 gift card and you have $5 left to spend at the same store next time you're there.
Gift cards may be far more popular than gift certificates — but plastic hasn't killed paper yet. Many fast food restaurants and movie theatres still offer gift certificates — paper is cheaper when you're doling out gifts in small denominations.
What other advantages do gift cards offer retailers?
Studies show that people spend more on gift cards than on gift certificates. The average gift card denomination is $50 — twice the amount people would spend on the average gift certificate.
And armed with that gift card, you're more likely to spend more than its face value when you shop — as much as twice the value of the card.
Research also shows that people who buy with gift cards are less likely to be fussy about the price they're paying. A study by the J.C. Williams Group found that 40 per cent of shoppers using a retailer's card bought items at full price. Only 16 per cent of shoppers using other payment methods bought at full price.
Retailers are also partial to gift cards because they tend to decrease the amount of merchandise that is returned. You won't have to fake it when you say, "No, I really do like it" when you open what Grandma got you this time.
Another reason retailers have taken to gift cards is that they appear to smooth out the drastic sales drop in the weeks after the busy Christmas season. Gift cards are purchased in large numbers in November and December and given as gifts at Christmas. But many are not redeemed until January or later.
On March 21, 2006, StatsCan reported that gift cards help propel January retail sales to a record $31.8 billion — up 1.4 per cent from the normally frantic Christmas shopping season in December.
Retailers don't record a gift card purchase as a sale until it is actually redeemed for merchandise.
Oh, and they're a lot harder to counterfeit than gift certificates.
Are there any disadvantages for the retailer?
They're not cheap. Gift cards can cost a retailer from 50 cents to $3 a card, depending on how many are ordered. So if you're a small or medium-sized business, chances are you can't afford to offer your customers your own gift card option.
There are also implementation costs of up to $50,000.
You generally have to go to an outside company to set up a program. On the other hand, the retailer normally pays a fixed amount for each transaction instead of the three per cent that credit card transactions cost.
Are there other disadvantages for the consumer?
Expiry dates and added fees are two issues that have irked consumer groups. Ontario and Manitoba have passed legislation that bans expiry dates, fees for using the cards and maintenance fees charged if you don't use the cards within a prescribed period.
About 30 American states have also passed legislation that places varying levels of restrictions on expiry dates and maintenance fees.
Most Canadian retailers have decided to drop expiry dates and maintenance fees, but there are still some exceptions. Ontario's law came into effect on Oct. 1, 2007. Cards issued before then may still carry restrictions.
In Ontario, cards issued by third parties — like shopping malls — have been given a temporary exemption. It's estimated that 15 per cent of gift cards sold in Ontario are issued by shopping malls.
For instance, Cadillac Fairview charges a $1.50 processing fee for its gift cards, which can be used at more than 4,000 stores in 29 malls across the country. The cards are also subject to a monthly $2 maintenance fee if a balance remains after 15 months. The cards are only valid for three years, after which they must be reinstated by customer service.
The Consumers Association's Bruce Cran questions why malls got the exemption in the first place.
"You've got to wonder if these exemptions are just another case of industry lobbyists overriding the interests of consumers," he said.
While Future Shop and Best Buy have eliminated expiry dates and maintenance fees, they do restrict the number of cards to three that you can use in a single purchase. If you pay for part of the purchase with a credit card, you're only allowed to use two gift cards.
And gift cards issued by credit card companies like Visa may carry other fees, like the 2.5-per-cent foreign currency charge credit card companies tack on to your purchases when you use plastic outside of Canada.
