More shoppers than ever are turning to gift cards this holiday season, which gives retailers a reason to celebrate.
“Retailers embrace the gift card,” said Maureen Riehl, National Retail Federation vice president and government and industry relations counsel. “It’s a ticket back into the store” that retailers hope shoppers will apply to a bigger purchase.
Holiday gift card sales will reach $26.3 billion in 2007, according to the NRF, growing 42 percent in the past two years. In 2006, the holiday sales totaled $24.8 billion, and in 2005 the number was around $18.5 billion. The Montgomery County Office of Consumer Protection estimates that $80 billion to $100 billion in cards will be sold nationwide this year, according to administrator Evan Johnson. $1 billion worth of cards will be sold in Maryland alone.
The cards are even more “readily available to consumers,” said Kathy Grannis, an NRF spokeswoman, with some retailers selling them in stores besides their own. But according to an October study by the Consumer Reports National Research Center, 27 percent of 2006 gift card recipients hadn’t used at least one gift card yet. The unredeemed money is causing some controversy.
“It’s fair to say that a lot of the money remains with the companies,” said Johnson, whose office released a report citing a figure of $8 billion annually in unredeemed, expired or lost cards. Some states say the money should come back to them, he said. Some states, such as Maryland, allow companies that have no expiration date or fees, to claim the unredeemed money, known as breakage, as income after a certain period of time, Johnson said.
Retail cards tend to fall under this category, whereas branded cards, those with the American Express, Discover, MasterCard or Visa logo, must have an expiration date in order to work on the existing credit-card network, said JudieRinearson, a partner with Bryan Cave LLP who specializes in prepaid cards and works with both retailers and banks issuing branded cards. Thus, since some states can then claim the breakage after a time on these cards, banks have to charge fees on the card to maintain the gift card-operations, she said.
Navigating different state laws can also be challenging, said Marilyn Bochicchio, president of the Network Branded Prepaid Card Association.
But the National Retail Federation “doubts the Montgomery County study,” said Riehl, who added that retailers would rather people use the cards than carry the liability of the breakage. Branded cards “taint our cards,” Riehl also noted, by charging fees.
