I must confess that I hesitated to write this month’s newsletter about as trivial a topic of the use of gift cards but in the context of the recent holidays I just couldn’t resist. I’m sure you are very familiar with gift cards, or as they used to be known, gift certificates. The retail industry has done an incredible job of "guilting" us into thinking that giving someone a gift of cash is thoughtless and shallow while the gift of a gift card, which is really nothing other than cash with limited potential use, is far more acceptable. Retailers have been so successful that according to TowerGroup, a financial services research firm, we will have bought about $80 Billion worth of gift cards in 2006 alone.* The truth is that most of us give gift cards because they are easy, especially when we haven’t a clue as to the preferences of the intended recipient. It is convenient but is it really a good gift?

The problem with gift cards, much to the delight of the retailers who sell them, is that they frequently are never, or only partially, redeemed. If they aren’t used promptly, they tend to get lost or forgotten and never used. Consumer Reports estimates that close to 20% of gift card recipients in 2005 have not yet used their cards* and many of those never will. Based on the TowerGroup’s numbers, that represents almost $16 Billion of value that was gifted this past year that will still be unspent a year from now. Well, more accurately it's unspent from the consumer’s perspective but not as far as the retailer’s profits are concerned. The retail industry has the cash and is delighted if the card is never used. Granted, some of these cards will eventually be dusted off and used but the reality is that most will probably not, and will collect dust until they are either lost or too old to be honored.

Another factor to consider is what I’ll call the tendency to round up. The elusive gift that might otherwise have cost $35 or $45 tends to become the $50 gift certificate. Similarly, the gift card recipient, seeing as they have in essence a "free" $50, may well decide to buy the extra super duper model gizmo at $60 rather than the otherwise perfect regular model for $45. After they’ve made their purchase the mentality is as likely to be as much joy about getting the $60 gizmo for only $10 out of pocket as it is to be that Aunt Ethel just paid for about 80% of your new gadget. Once again, who’s the big winner here? The retailer.

So I’ll conclude my after the holidays newsletter with two pieces of advice. First, if you have received a nifty new gift card, use it!  If you aren’t going to use it give it someone who will. Unless the card gets used you’re basically giving it back to the retailer which is certainly not a good use of the card. Second, as a gift giver if you aren't very sure the gift card recipient will use the card, give them cash instead. Although you may think of yourself as an uncaring gift-giver, the fact is you are really doing the recipient a favor.  You'll both be happier in the long run.

Randy Gridley

January, 2007

* All data from this newsletter was taken from "The Gift Card Economy," N.Y. Times 1/07/07