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 52.

    The reason is surely so very simple.

    Gift tokens enable the recipient to have what they really want, not what somebody else thinks they would like. It has nothing to do with laziness or lack of imagination on the part of the giver. Nothing could be more convenient to either side.

  • rate this
    +1

    Comment number 51.

    The last time I gave a gift card, it was to my next-door neighbours' young daughter. She'd earned it, but her parents might not've been too happy if I'd given her cash. A token she could only spend on a book of her choice wasn't a problem.

  • rate this
    +3

    Comment number 50.

    In our family we tend to give gift cards or Amazon vouchers so we can buy our own Christmas presents in the Boxing Day sale. In that way everyone gets exactly what they wanted, they get more of it because it costs less in the sales, and you still have something to open on the day.

  • rate this
    +16

    Comment number 49.

    @37.Giles Jones
    More anti-Apple biased rubbish with no basis in fact. How can you not own an MP3? (which most iTunes plus downloads are).

    You lease it from Apple, you don't own it. Once you buy an iGadget, the more money you spend on iTunes, the greater your consumer choice is eroded too. Your less likely to upgrade your Apple hardware to an alternative that cannot use your iTunes purchases.

  • rate this
    +2

    Comment number 48.

    I don't know why people are so down on gift cards. At least it shows that someone is giving an indication of the type of thing you'd like, even though they haven't made a specific selection. At the end of the day, any gift can only be a good thing, can't it?

  • rate this
    0

    Comment number 47.

    37.Giles Jones
    11 Minutes ago
    @22 "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"

    More anti-Apple biased rubbish with no basis in fact. How can you not own an MP3? (which most iTunes plus downloads are).


    Simple I have no use for an MP3 player, I prefer to buy all my music on CD.

  • rate this
    +2

    Comment number 46.

    I take the 'gift cards are lazy' argument, and personally I feel nothing is more satisfying than giving a perfect present. However I'm not going to buy useless rubbish just to pretend I've got myself off the emotional 'make an effort' hook. I'm very busy and sometimes I don't have the time. Mega-militant and patronising 'gift cards are insulting' people; maybe you have too much time on your hands?

  • rate this
    0

    Comment number 45.

    Cash is KING as the saying goes.

    If a company goes bust (e.g Comet) then gift vouchers and gift cards are usually the first to be declined.

  • rate this
    0

    Comment number 44.

    I know someone that if I gave them cash, they would not spend it on themselves but would instead spend it on their grand children or food shopping for the house. They generally always want clothes as gifts. So by buying a gift card for this person ensures that they go to the shop and spend the "money" on themselves. I could but the clothes but who can get it right clothe shopping for anyone else?

  • rate this
    +2

    Comment number 43.

    @32.musictechguy
    So True! I have an in-law, who during the year buys things she likes, puts them in a box and then at xmas tells me she will pick an item from th box, that I can pay for, as her present. She will even wrap it and put it under the tree! No Way. We now just exchange Amazon vouchers, I am disengaged, she is unimaginative. That done I enjoy Xmas presents with the rest of the family.

  • rate this
    +14

    Comment number 42.

    37.
    Giles Jones
    "More anti-Apple biased rubbish with no basis in fact. How can you not own an MP3? (which most iTunes plus downloads are)."

    - You really need to read the small print on your itunes account.. you are leasing a copy of the music, NOT buying it. The original poster was correct!

  • rate this
    +1

    Comment number 41.

    Rubberduckred
    It's very common to see a whole shelf dedicated to gift cards in a shop, for example Sanisburys sell cards from B&Q to Pizza Express

    In terms of taking a loss on each card, Depends how you look at it. The retailer gets their cash immediatly, but people tend to take months to spend the card, thus the retailer is saving on financing. Then their are the expired and lost cards..

  • rate this
    +2

    Comment number 40.

    Consider a £10 gift card which has an expiry date. Hmm. Why would you want to exchange a £10 note - which is valid in every shop in the country and has no expiry date - with a gift card which has limited use, and will actually expire if you don't use it - meaning you lose your money? Hmm...!

  • rate this
    +2

    Comment number 39.

    I like receiving gift cards-they enable me to buy something I actually want or need,rather than being given yet another pair of socks or whatever.
    As a grandad to 4 teen/20s young ladies,giving them a gift card means they can spend it on what they want-I really don't have much idea what young ladies want
    The local Post Office sells gift cards that can be used in many different shops - ideal.

  • rate this
    -8

    Comment number 38.

    Any gift voucher I receive I sell on eBay.

    It is the thought that counts.

  • rate this
    -21

    Comment number 37.

    @22 "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"

    More anti-Apple biased rubbish with no basis in fact. How can you not own an MP3? (which most iTunes plus downloads are).

  • rate this
    0

    Comment number 36.

    When my sons were young my inlaws all had the bright idea of clubbing together to give them WH Smith gift cards for Christmas. The look on their faces when they unwrapped their presents was abject disappointment. We ended up buying the vouchers which we didn't want, so they could have more choice. Despite our objections this practice continued for several years.

  • rate this
    +2

    Comment number 35.

    I generally find spending a gift card frustrating due to the restrictions involved - I have many unusued lying around. However - they are very useful when you have something in mind that one person could not (or should not!) buy for you - and so ask everyone for a voucher/card for a store that you know you can buy it in yourself.

  • rate this
    +5

    Comment number 34.

    It annoys me people saying here you would only give a gift card because you're "unimaginative". Years of receiving presents I don't want, rather than actually being asked what I want, has taught me not to do the same for other people, but to leave them free to choose what they want. I'm not unimaginative, but I'm not a mind reader either.

  • rate this
    +15

    Comment number 33.

    A gift is just that - a gift. Not an obligation. So if someone wants to give you cash, a gift card, a pack of toilet paper or some brilliant gadget, you should be thankful that they have wanted to spend their money on you!

    I would NEVER be offended if someone wanted to give me cash or a gift card - bring them on!!!

 

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