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
    +3

    Comment number 72.

    'Thanks! A card with some money in it that I can only spend in certain locations. You shouldn't have. No, you really shouldn't have...'

    Giftcards. A pointless waste of time.

  • rate this
    +1

    Comment number 71.

    Some retailers & shopping centres sell what are known as "open loop" cards (IE Visa or Mastercard branded) that can be spent in a much wider selection of shops, often not restricted at all, so are more like giving cash really. The funds are also held in bank accounts & "ringfenced" so not subject to the risk of retailers going bust (+ generally have longer expiry dates).

  • rate this
    +19

    Comment number 70.

    I struggle with the legality of companies behaving like Comet. If they have already recieved the money then they should have accrued for that within their accounts and having already recieved the cash should honour the value of the card. Surely their behaviour is not only immoral but ultimately fraudulent?

  • rate this
    +3

    Comment number 69.

    If you don't do somebody well enough to have an idea what gift they would like, then you probably don't know them well enough to even buy them a gift. Then a cash amount would be fine, if it indeed any gift at all is warranted.

    I cannot believe who thought it would be a good idea to buy a £500 Comet gift token for a 4 year old as mentioned in the news story. What were they thinking?

  • rate this
    +2

    Comment number 68.

    I don't understand the stigma of giving cash, maybe as most of my family don't live locally so when I was young they'd put cash in birthday/christmas cards & give them to my parents for safe keeping. Cash also means you can shop around online.
    Of cash vs gift card, I'd opt for cash every time.
    (Except when it's just due to people being lazy. I encourage gifts of "things I'd use anyway, but nicer")

  • rate this
    0

    Comment number 67.

    @58

    Apologies :-). I prefer the 'buy to own method' too

  • rate this
    -9

    Comment number 66.

    Two reasons.

    1)You can ensure a youngster spends their money at the outlet you choose (ie a bookshop) without danger of them buying sweets or cigarettes with it.

    2) A voucher shows you put thought into it and didn't just rifle through your wallet last minute, even if you weren't sure what to get.

    If the BBC has any other mysteries they'd like to clear up, feel free to e-mail me.

  • rate this
    -2

    Comment number 65.

    It is not cool to give your boy- or girl-friend a gift card. It just isn't, capiche!

  • rate this
    +23

    Comment number 64.

    Maybe the law should be changed so that money from gift card purchases has to be put in an ESCROW account until the consumer uses the value of the card or until the card expires. That way consumers could be protected if a retailer goes bankrupt.

  • rate this
    0

    Comment number 63.

    I know where my friends and family like to shop. A gift card gets them in the door and spending. Some say its like drifting through a store, having that free feeling that at the end of the shopping spree, you don't have to pay for anything.

  • rate this
    +9

    Comment number 62.

    I always prefer a proper gift. Whether I like it or not is irrelevant; some of the worst gifts are the ones I still fondly remember and can have a good old smile about years later.

    If not a gift, then cash please. Gift vouchers expire, or the store goes bankrupt and its worthless. And you're basically deciding where someone spends their money... I don't get why anyone buys gift cards.

  • rate this
    +9

    Comment number 61.

    @37 Giles Jones

    Ok. . . . .A very famous film star is in a battle with Apple at the moment as he wishes to leave his vast collection to his daughter in his will. He is 'not allowed' to do this because the music he 'bought' is only leased so never 'owned' by the 'buyer'. I was NOT bashing Apple (i have an ipod), I was just stating a fact

    I'm very glad you have learnt something today :-)

  • rate this
    -1

    Comment number 60.

    @2.SAB
    The best and safest gift vouchers are the universal kind – CASH
    You can use them anywhere and there is no time limit on them.

    There is a time limit, it's called inflation. German's in the 30's found that out when hyper inflation hit. It got so bad they would insist on being paid hourly, then run to the gates of the factory to give it to relatives to spend before it became worthless.

  • rate this
    0

    Comment number 59.

    Perhaps it's true that the gift card is the coice of the idle and disengaged. There's a lot to be said about hand-made gifts. It doesn't have to be complex or expensive - a jar of jam or packet of biscuits often gets a big smile and a heartfelt thankyou. Yes, the christmas jumper is a cliché, but it can be a lot of fun. Think about giving a little of your time this year rather than money.

  • rate this
    +3

    Comment number 58.

    55.stereotonic
    2 Minutes ago
    @47

    I'm afraid YOU are wrong. Bruce Willis is at present taking Apple to court as he wishes to leave his vast collection to his daughter in his will. Apple are trying to prevent him doing this as they remain 'owners' of his itunes purchases!

    I didn't say anything about that, but at least I won't have to take anybody to court to leave my CD's to anybody.

  • rate this
    +30

    Comment number 57.

    How is it legal for these cards to expire?

    Surely you've paid your money for a deferred purchase?

    I would expect the retailer to honour that expenditure. After all, they are accrueing interest on the payment, and its value will depreciate the more time that passes so they win in any case.

    Seems like a huge con to me.

  • rate this
    -7

    Comment number 56.

    @49. "Your less likely to upgrade your Apple hardware to an alternative that cannot use your iTunes purchases."

    If we're talking music, then any modern computer hardware can support the .mp4/.wav files that come as downloadable iTunes files. If you're hardware can't support it then just use generic file conversion software so it can.

  • Comment number 55.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 54.

    My birthday is very close to Christmas, although far enough away that the 'one present for both occasions' is not really an option. I have one response to anyone and everyone who asks 'What would you like?' ..... Get me a Waterstones Gift Card. There is nothing more satisfying for me than walking out of the bookshop with a raft of new reading material. I love gift cards/book tokens.

  • rate this
    0

    Comment number 53.

    After countless years and too many hours spent searching store after store in the run up to Xmas to find THE gifts. To be faced with an 'oh right! is that it?' face from nieces & nephews...I'm afraid I've given up the effort. Each face said 'you should have just given me cash'. So now I don't even bother...our modern society!

 

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