Gift cards set for holiday season comeback

By Shradhha Sharma - Analysis

BANGALORE (Reuters) - Gift cards are poised to make a comeback this holiday season, after falling off most shopping lists last year, as retailers and other card purveyors entice U.S. shoppers with freebies and lower fees.

The gift can be an effective source of retailer revenue following the holiday season, as consumers who redeem their cards typically spend more than the value of the card, Stacy Janiak, vice chairman and U.S. retail leader for Deloitte LLP said.

"They have also played a role as a promotional tool, helping to incentivize consumers to shop at a certain store."

The holiday gift fell out of favor last year as recession-weary consumers preferred to take advantage of massive markdowns on actual products, and concerns that retailer bankruptcies would make cards bought at those stores worthless. Shoppers spent an estimated $24.9 billion on gift cards during the holidays in 2008 -- with $40 as the average value of a card -- a fall from the $26.3 billion spent in 2007, according to the National Retail Federation (NRF).

But now that retailers have pared inventories and are likely to offer smaller discounts this year, gift cards are expected to be a popular item again on holiday shopping lists.

Janiak said she expects more consumer-friendly terms on gift cards from retailers and card companies this year.

As per an NRF survey, 10 percent of the U.S. shoppers polled said they bought fewer gift cards last year because they were concerned about card expiration or added fees.

Last month, American Express Co (AXP.N) said it was getting rid of the monthly fees on all its gift cards.

Sears will offer special "Christmas Club" cards till November 14 that never expire and can be used on anything from fleece to food, to electronics and appliances.

J.C. Penney Co Inc (JCP.N) is hoping to lure more shoppers by offering freebies like crystal clocks and jelly jars with the purchase of a $25 gift card.

BARGAIN HUNTING

Online sites offering discounted cards are also fast becoming a haven for bargain-hungry shoppers looking to stretch every dollar.

Mountain View, California-based PlasticJungle.com, which allows customers to sell, buy or swap gift cards has about 47,000 registered users and has seen revenue grow by 50 percent quarter-over-quarter, Kristin Cunningham, director of marketing, said.

And after Kwame Kuadey recently appeared on ABC's reality show SHARKtank to pitch his business to potential investors, sales at his discounted gift card website GiftCardRescue.com have tripled to $45,000 a month.

"People get gift cards all the time that they don't want. And it's probably from a store they don't like or (because) in today's economy they'd rather get cash for their gift cards so they can buy what they really want," Kuadey, who runs the site from his home in Ellicott City, Maryland, said.