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Gift cards set for holiday season comeback

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.

Plus, cash-strapped consumers are buying up discounted cards to shop at big box retailers like Wal-Mart Stores Inc WMT.N and Home Depot Inc HD.N, and at chains like Safeway Inc SWY.N and Starbucks Corp SBUX.O.

Business at GiftCardRescue.com is expected to grow further after a recent deal with Amazon.com, which will give customers the option to either cash their gift card or swap it for an Amazon one.

MIXED TIDINGS

Still, a recent survey by Archstone Consulting forecast 2009 holiday gift card sales in the United States to trend between flat and down 5 percent.

America’s Research Group CEO Britt Beemer also sees gift card sales between flat and falling 5 percent to 7 percent.

But, eBay Inc's EBAY.O pop culture expert Karen Bard said the online auctioneer has seen a spurt in card and coupons sales from Starbucks, Kohl's Corp KSS.N and Lowe's Cos LOW.N in the last three months, and sees card sales this holiday season likely outpacing 2008 levels.

Meanwhile, the NRF’s Kathy Grannis thinks “a lot of consumers will go back to their old ways and look at gift cards as a great way for providing convenience to the person you are giving the gift to.”

On Safeway’s latest quarterly results conference call, its unit Blackhawk Network, a provider of third-party gift cards, said gift card sales had risen 21 percent.

Coffee chain Starbucks, whose gift card sales rose 8 percent to $26 million last year despite a fall in net sales, expects to sell lots of cards this year as well.

“In a lot of ways last year was the holiday that never happened,” Terry Davenport, Starbucks’ senior vice president of marketing, told Reuters.

“We don’t think that is going to hold true this year. We think people want their Christmas back.”

Reporting by Shradhha Sharma in Bangalore; Additional reporting by Nicole Maestri in San Francisco, Tom Hals in Wilmington, Delaware and Lisa Baertlein in Los Angeles

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