Gift cards: Why are they so popular?

 
Tired Christmas shoppers

They restrict your choice, can expire without you noticing and - as customers of UK electrical retailer Comet are finding out - can be worthless once a company hits financial trouble. So why are gift cards still on so many people's Christmas shopping lists?

Eighty years ago this month, the first book tokens went on sale in the UK - in time for the Christmas rush of 1932.

The brainchild of publisher Harold Raymond - who questioned the "capacity for giving pleasure" of many festive gifts - it inspired a new form of giving.

Four years later, Boots issued the first individual store vouchers in the UK. Via Green Shield Stamps and High Street Vouchers, their popularity increased until - by the mid-1980s - a voucher in a Christmas card was a standard get-out for uncles bereft of inspiration.

So it remains in their modern incarnation - the gift card - sales of which totalled more than £4bn last year.

However, the pitfalls of their purchase were highlighted after the electrical retailer Comet entered administration.

Value of UK gift card industry

Woman with gift card
  • 2003: £2.7bn
  • 2006: £3.2bn
  • 2009: £3.8bn
  • 2012: £4.4bn

Estimates from UK Gift Card and Voucher Association

Staff at a store in Plymouth refused to accept a £500 card from a four-year-old cerebral palsy sufferer who wanted an iPad.

"Gift cards are essentially IOUs, but if a company goes bust, or into administration, whoever has the gift has no rights at all," explains Paul Lewis, presenter of BBC Radio 4's Money Box.

"The only hope is that if the purchaser has bought it with a credit card or debit card, they can get it back from the bank."

Alternatively, if a buyer is found for a company, the new owner might decide to honour gift cards - as happened with the Game software chain.

Even so, in the current retail environment, Lewis views buying gift cards as "quite a risk". He adds that many people are caught out by cards expiring after a year or two.

"It will be from the date it was purchased - not from the time the gift was given - and it often won't give a date on the card."

In 2009, the US government outlawed cards which expire less than five years after purchase. Meanwhile, in the UK, industry figures suggest people waste £250m on cards they do not use - amounting to a 6% windfall for the retailer.

But the market continues to grow.

The UK Gift Card and Voucher Association estimates people will fork out a total of £4.4bn on the products this year, up from £2.7bn in 2003. Businesses account for about half of this - many using them as rewards, such as for staff performance or long service.

Greek couple with notes pinned to their clothes

The association's director general Andrew Johnson says the value of gift card sales has grown by about 10% annually over five years, thanks largely to the card format reinvigorating the market.

"Whereas vouchers had to be locked in a safe, cards can be displayed in-store because they've no value until they're charged up at the till," he says.

Gift card pitfalls - and alternatives

  • Check expiry dates, and where and how cards can be redeemed
  • Many retailers' gift cards cannot be spent online, says Which?, and there may be restrictions on what can and can't be bought
  • It suggests alternatives such as:
  • Prepaid cards - can be used almost everywhere debit and credit cards are accepted, and once money is spent, the recipient can't run up debt
  • Postal orders - money is sent and collected from Post Office branches, so like giving a cheque to someone without a bank account
  • Bank transfers - not the most inspiring present, but you can send a card to let the beneficiary know you've put money in their account

Designs also target specific markets - from youngsters wanting the latest toys to newlyweds kitting out a marital home - while supermarkets have increased convenience by stocking other stores' cards.

The popularity of gift cards in the US was underlined by a recent National Retail Federation survey which found 60% of 8,899 respondents hoped to receive them this Christmas. Research firm TowerGroup predicts the market will be worth $200bn by 2021.

Consumer psychologist Cathrine Jansson-Boyd says their appeal is simple.

"A gift represents both you as a person and also what you think the person you're giving to is like. People don't want to be seen as giving the wrong thing; as misinterpreting someone's personality.

"People won't give cash because it can be seen as an insult; like you can't be bothered. Even if a card isn't a great effort, it still seems like you've made an effort of some kind."

For example, if someone's a tech enthusiast but you don't know what the latest gadgets are then a voucher for an electrical store is a safe bet, she says.

A 1930s book token How 1930s book tokens arrived - they were created 80 years ago this month

Jansson-Boyd says it's a question of history and culture.

"The night before Greek weddings, people throw money onto the marital bed. But in the UK, we aren't comfortable giving money. When it's too obvious how much a present is worth, it's seen as vulgar."

People often don't specify how much a card is loaded with, she points out.

Retailers love the cards because they pull people into stores, where they often spend more than the value of the card, according to Richard Perks, director of retail research at market analysts Mintel.

In essence, they amount to an interest-free loan from consumers to businesses, he says. If the average time between purchase and redemption is two months, he estimates, retailers effectively save about £65m a year in loan interest.

Technological developments may soon make electronic vouchers on mobile phones common, says Perks. But, despite their popularity, he says gift cards remain a small segment of the £300bn retail sales market - a "nice to have" for retailers in the UK.

What happens to unwanted gift cards?

  • Many are sold at a discount on online auction sites such as eBay
  • Which? says if you buy a second-hand gift card online, there is no way of checking if it has the advertised funds
  • And eBay's payment system Paypal will not provide purchasing protection if it has already been spent or has expired
  • The website Gift Card Convertor bills itself as a marketplace to trade gift cards, with the company taking a 10% commission
  • But stores such as Next, Waterstones, Mothercare and iTunes do not allow their cards to be resold, so check in advance

For Dimitrios Tsivrikos, a lecturer in retail psychology at London Metropolitan University, the gift card habit is a sign of our digital times.

"Shopping behaviour is changing with the way we communicate," he says.

"Because we minimise the meaningful time we spend with each other, we don't know people as well as we used to or develop an understanding of their preferences."

Instead of simply asking what somebody might like - with the associated awkwardness of not wanting to ask for something too expensive - people are researching their gifts by seeing what people "like" on social networking websites - and buying a card for the relevant store, says Tsivrikos.

This method of research has its own shortcomings, however - as someone's online persona reflects how they would like to be seen - rather than their true character, he says.

Retail consultant Clare Rayner says many consumers feel a gift card will definitely be spent on a treat, whereas cash might be used to pay for the mundane.

"The giver wants to know their investment in a gift went on something desirable, but they've attempted to leave the choice of item up to the receiver."

But she adds: "Personally I favour cash - it's the one universally accepted gift card."

 

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  • rate this
    -1

    Comment number 32.

    Gift cards are a vehicle for the disengaged and unimaginative.

  • rate this
    0

    Comment number 31.

    @16. jurassicflood - Retailers selling them get a percentage of the face value of the gift card as commission.
    Erm, don't they get all of the money not just a percentage? Also, I presume that the company that produces the plastic cards doesn't do that for free. So that means the retailer makes a slight loss on every card sold (initially) and rely on you buying extra's while you are in the store??

  • rate this
    +3

    Comment number 30.

    1 -Its about time gift cards come under the FSA protection
    2- All instore cards should be honoured while the store is still tradeing irrespective if the company is in adminastration or not

  • rate this
    +1

    Comment number 29.

    I was in the habit of giving Argos gift vouchers to my nephews and niece until R4's Money Box Live said earlier this year that 7% of gift vouchers never get spent, which represents a huge free windfall of hundreds of millions of pounds to retailers.

    Now I just give cash inside the birthday cards. Simple.

  • rate this
    +17

    Comment number 28.

    Gift cards that have an expiry date are one thing and one thing only! (assuming they don't get used). THEFT

  • rate this
    -5

    Comment number 27.

    Gift cards are given by the unimaginative usually for the shops that the giver goes to rather than thinking about where the receiver goes to. Also you end up buying something you don't really need just to spend the thing. Far better for the unimaginative to give cash or better still, nothing at all. People have far too much stuff anyway. At least with cash a number of gifts can be put together.

  • rate this
    +8

    Comment number 26.

    Personally, I don't like Gift Cards as they are just money with restrictions on usage.

    It's the thought behind a present that is supposed to matter most & Money/Gift Cards represent no thought at all.

    For children at Xmas/Birthdays, Money/Gift Cards from distant relatives are fine, but the rest of the time it's fairly insulting & just says I don't care enough to put any real effort into it.

  • rate this
    -1

    Comment number 25.

    The most pleasing thing about a gift is the thought that someone has put into picking it. Gift cards show that people simply can't be bothered.

  • rate this
    +2

    Comment number 24.

    I load up my supermarket gift card every month with about £400 through a website where I get 5% discount for doing so. So I spend £380 there and then on my debit card but have an extra £20 to spend in store. Perfect way of saving money every month.

  • rate this
    +1

    Comment number 23.

    I hate giving gift cards, they are so impersonal. I prefer to give gifts, then it looks like a lot of thought and effort have gone into them

  • rate this
    +4

    Comment number 22.

    @9musictechguy

    I would NEVER 'buy' itunes as a 'gift'. You never actually OWN an itune, so that would be a totally useless girt in my eyes

  • rate this
    -9

    Comment number 21.

    You smile and say thank you.

    Then give the card to someone you don't like.

  • rate this
    +4

    Comment number 20.

    Our local shopping center sells gift cards, which are accepted at every shop in the center. Its less risky as its not dependanted on one chain of stores and give the receiver more choice in where to spent it, be it on groceries, clothes, phones, gadgets, games or whatever.
    Its so popular they are talking about expanding the program to cover more of the shops and shopping centers around the city.

  • rate this
    +5

    Comment number 19.

    @16 "Gift cards are popular because they are a con.". Would people opt to buy something which was a con?? Retailers selling them make a profit? Wow. This is pretty much how shops work, they buy something, add a profit margin, sell it. It's called capitalism.

  • rate this
    +1

    Comment number 18.

    Have they not been going for years, just that they used to be in the form of book or record tokens. Just a more up to dayte version

  • rate this
    +3

    Comment number 17.

    I live in France and buying gift card online for friends and family in the UK makes perfect sense.

  • rate this
    -5

    Comment number 16.

    Gift cards are popular because they are a con. Retailers selling them get a percentage of the face value of the gift card as commission. Retailers who sell their own gift cards lock in givers and receivers to their products.

    Follow the money.

  • rate this
    +12

    Comment number 15.

    9.musictechguy: "The most useful gift card is an iTunes gift card." An itunes gift card would be entirely worthless to me, as I don't have and don't want any iProducts. The most useful "gift card" would be a standard card like Visa or Mastarcard pre-loaded with funds (similar to how a FairFX card works). Surprised there isn't a bigger market for these.

  • rate this
    -6

    Comment number 14.

    I think cash and gift card prezzies are a cop out. It's lazy and easier than making an effort and using your imagination to choose a gift appropriate for the person it's meant for

  • rate this
    +2

    Comment number 13.

    I LOVE gift cards. Any I receive end up being a perfect gift because I did the choosing. They give me the option of 'topping up' and buying something that my giver might not have been able to afford. The 'risks' can be avoided with legislation, forcing all cards to be insured and redeemed if the store goes bust and have no expiry date. About time Gov did something about this important industry.

 

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