When shopping for gift card deals, think high-end

NEW YORK Fri Dec 9, 2011 11:24am EST

NEW YORK (Reuters) - There's a way to save money this holiday season, even before the after-Christmas sales: Unused gift cards and merchandise credits for resale in secondary markets. Some of the best deals favour high-end retailers.

The expansion of the secondary marketplace for gift cards during the last two years is a natural outgrowth of ever-expanding gift card sales. TowerGroup is projecting 2011 gift card transactions to hit $100 billion and to grow by another 25 percent by 2014.

About 6 percent to 10 percent of cards sold go unused, so the idea of the secondary marketplace is to motivate card holders to get something rather than nothing for cards they have no intention of using. The middlemen - like Cardcash.com, PlasticJungle.com and Cardpool.com - buy the cards at a discount and keep a fraction (typically about 5 percent of the card value). By acquiring the cards and verifying them, the sites can guarantee you're getting what you're supposed to.

While several retailers contacted by Reuters declined to discuss the gift card reselling market, there is an upside for them: Unused cards are reported as liabilities. Getting those dormant cards used allows the retailers to record the sales.

Along with the gift cards, the resellers offer unused merchandise credits or gift cards with balances - putting some cards on the market with odd totals rather than the round numbers most folks are used to seeing. (Hint for gift-givers: You can still get a great deal on one of those cards, but don't buy one of those as a present for someone.)

Demand is so high for cards from mass market merchants like Target (TGT.N) and Wal-mart (WMT.N) that buyers are likely only to save around 3 percent - but even that small a discount will move inventory.

That's not the case for cards that can be used at pricier retailers, says Cardcash CEO Elliot Klier: "In order for us to be able to turn around the higher end retailers, we can only do that with a bigger discount," says.

There are typically dozens of different brands for sale at any time at varying discounts and the inventory is constantly changing. Want golf clubs? You can buy $500 worth of Callaway gift cards for $400 on Cardcash, one of the leading gift card exchanges. Here are some other recent examples: $196.84 to use at Lucky Jeans for $151.57 (23 percent off), $419.35 to use at Gymboree stores for $343.87 (18 percent off) and $25 at CVS for $24.25 (3 percent savings).

If you're on the selling end of the equation, it works the same way in reverse. The more popular the card, the more likely you are to get close to the dollar value.

Cheryl Davidov, a New York City speech pathologist, says she was given a $200 gift card to Sunglass Hut, but knew she wasn't going to use it. So, she sold it.

"Even though I didn't get the full value of the card, instead of not using it all, I sold it for $150," she says.

But Davidov says most of her experience has been as a buyer. She had her eye on a $598 bag at Coach and was already holding a $50 card that had been given to her as a gift. You can't really buy much buy at Coach for $50, she thought, so she signed up to be alerted when Coach gift cards became available on Cardcash. When they were, she bought four cards with a total value of $535.74. The cost of those cards: $375.02, 30 percent discount.

Klier says the average returning customer (first-time users tend to be more timid), spends $200-$300 on cards per transaction.

Davidov says once she realized how easy it was to get a big discount, particularly at some of the better stores, she started buying.

"Once you get started you can get hooked," she says. "It's really addicting."

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The author is a Reuters contributor. The opinions expressed are his own. (Editing by Jilian Mincer and Beth Gladstone)

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