Stores, shoppers get a charge out of gift cards

Target gift cards for sale.
In this Nov. 25, 2011 photo, the Target mascot dog advertizes gift cards at the Target store in Mayfield Hts., Ohio.
Amy Sancetta / AP 2011

Joan Smiley of Roseville likes to find gifts for her grandchildren that will show them how much she loves them. But if she can't find that ideal gift?

"Then I have to do a gift card," she said.

Garth Blomberg, of Minneapolis, finds gift cards so convenient that he makes them a first choice, not a last resort.

"When you're shopping for a 14-year-old teenager on the other side of the country, you don't really know exactly what they're into," he said. "But you can get them, for instance, an iTunes gift card, and they can get whatever music they're interested in."

Chances are you received or gave gifts cards this holiday season. Gift card sales have been growing, and pre-paid plastic is now a mainstream financial product that's also getting traction on mobile devices.

Gifts cards used to be a somewhat risky purchase, with cards losing value because of expiration dates and maintenance and other fees.

But in 2009, following the lead of many states, Congress enacted consumer protections for cards. Under federal law, gift cards cannot expire for at least five years after activation and inactivity fees are limited.

States can provide additional safeguards. Minnesota, for instance, generally forbids the sale of a gift card or certificate with any expiration date or service fee.

Gift card sales last year reached an estimated $124 billion, according to CEB TowerGroup. The consulting firm projects that sales will continue growing at 5 to 6 percent a year.

About a decade ago, the company says, about a 10th of the value of gift cards went unused. People held onto them. Now that's down to about 1 percent, as fewer people let cards languish in junk drawers and wallets. CEB analyst Brian Riley says consumers have a better understanding of gift cards now.

"These are not savings products," he said. "Buying a gift card is not like you're putting money in your checking account. You're asking a retailer to hold money."

Riley cautioned that it's not a good idea to trust a retailer to be around forever. Gift cards from retailers that go bankrupt are likely to be worth little or nothing. Customers of the bankrupt and defunct Borders bookstore chain, for instance, were left with $210 million in worthless gift cards.

As convenient as they are for customers, Riley said, cards are a good deal for retailers too.

Getting that $100 Target or Best Buy gift card brings you in as a customer. Studies have shown that, once you're in the store, you may end up spending more than the face value of the card.

Even unspent cards can help a retailer's bottom line. Best Buy typically rings up about $50 million a year in income from older cards that are unlikely to be cashed in. Target won't say to what extent cards go unredeemed.

With the rise of smartphones, more and more retailers are offering electronic gift cards that can be delivered within minutes to mobile devices or computers. The cards can be personalized with photos and messages.

"For the ultimate procrastinators, we sell e-gift cards online every day, all day," said Jeff Shelman, a Best Buy spokesman. "If you don't have a gift for someone, you can go to bestbuy.com and get one, even though our stores are closed."

At Target, customers can buy, send and use gift cards on smartphones. They can move the value of a physical card to a phone, split the value of a gift card among several phones or combine the value of several cards on one phone.

Some merchants offer animated musical gift cards featuring such things as dogs woofing out Christmas carols.

For people who would rather have cold hard cash, it's possible to turn cards into currency — for a price.

Tomas Campos oversees digital products for Cardpool, one of several online firms that buy and sell gift cards. "We really help consumers who end up with a gift card they can't use get as much value for it as they can," Campos said.

For the most coveted cards, CardPool pays about 90 cents on the dollar. Then the company sells them for about 96 cents on the dollar.

With third parties like Cardpool and retailers making it easier to unlock the dollar value of gift cards, their utility and popularity is likely to grow.