Christmas gifts are in the cards

The scene on Christmas Day 2006, as Stacie Freymann remembers it, would have been comical if it weren't so strange.

The family was gathered in the Eagleville home of matriarch Christine Cassidy, 59. The grandchildren had opened presents, and it was the adults' turn.

Freymann, her siblings, the spouses and her parents - all eight members of the Cassidy Family Pollyanna - unwrapped their packages.

Each and every one was a $50 gift card.

Freymann laid down the law then and there: no more gift cards; no more pollyanna.

"I was the one who said, 'This is really ridiculous. Let's not do it again,' " the 37-year-old mother said. "It's just not as fun."

Time-pressed and creativity-starved shoppers are snapping up the go-buy-it-yourself treats by the fistful from drugstores, card shops, department stores and online sites to the tune of a projected $97 billion this year, according to TowerGroup, which tracks the card industry.

That would surpass last year's $83 billion.

For the fourth year in a row, gift cards are the most popular holiday present in the United States - well ahead of music, books, electronics and even cash.

Their exploding popularity reflects the long-held scorn of greenbacks as holiday gifts. Gift cards, the thinking goes, are the perfect face-saving alternative to cash, a warm and fuzzy dose of Abe Lincolns minus the crass.

But just as gift cards have become king, their limitations - including their similarity to cash - are beginning to take the gloss off their appeal. Fees, expiration dates, and the burden of having to use them at all have left billions of dollars' worth unredeemed each year.

Could it be that we are seeing early signs of gift card fatigue?

"I've talked to a bunch of people this year, and they say they're giving cash," Debbie Baldwin, a financial executive from Gulph Mills, said while browsing last week at a Barnes & Noble in Plymouth Meeting.

"They're literally just putting money in an envelope and saying, 'Merry Christmas.' "

It is premature to declare a bona fide gift card backlash; in dollars alone, the phenomenon is growing like a wild vine with no signs of weakening and with many shoppers and recipients swearing by them.

Sales of retail gift cards have gone from $24 billion in 2005 to a projected $34 billion by the end of this year, according to TowerGroup, while restaurant gift cards have gone from $14 billion to a projected $22 billion.

"I thought for sure we might have hit a peak this year and maybe we'll go back to something else, like cash," said Tara Weiner, Greater Philadelphia managing partner for Deloitte & Touche USA L.L.P., which compiles annual holiday spending surveys.

Not so.

Massive assortments from a wide array of retailers can be purchased in so-called "gift malls," or displays, at places such as supermarkets.

There are gift cards earmarked for gas stations; ones that can be used anywhere like a credit card; and ones attached to a particular retail establishment, food store or online vendor.

Seven out of 10 shoppers in an NCR Corp. survey titled "Holiday Headaches" said this fall that they had chosen gift cards over other items because they hadn't known what else to purchase.

Nearly half (47 percent) said they had bought gift cards to avoid the item's being returned. An additional 45 percent bought them because it takes less time than selecting a present.

Quite often, the cards are appreciated.

"When I get a gift card, I love that it gives me leverage to choose what I'd like to choose in the time that I want to choose it," said Janet Woods, 49, a piano teacher from Roxborough.

Her husband, Bill, prefers them to cash, which he would otherwise use to pay bills.

But gift cards also carry burdens that can be costly for recipients.

In 2006, about $8 billion of the $83 billion in gift card sales went unredeemed, according to TowerGroup. The industry refers to this as "breakage."

About half of all gift cards are redeemed in the first month, said Weiner, the retail expert from Deloitte. But many then start to collect dust.

Eighteen percent of people surveyed by Deloitte said they owned at least one gift card that was more than two years old.

Some lose value the longer they linger in wallet limbo. Gift-card rules and restrictions vary according to issuer or retailer.

About three dozen states have sought to implement laws to protect consumers, said Craig Shearman, a government-affairs spokesman for the National Retail Federation.

"Some ban expiration dates. Some ban the dormancy fees. Some ban both," he said. "The ones that are most troubling are the ones that try to bring gift cards under unclaimed-property laws."

Pennsylvania is one of those states. The commonwealth requires that the value of unredeemed gift cards be turned over after two years to the state treasury, where residents can then claim the cash.

The state collected more than $1.7 million in unclaimed gift cards or gift certificates between July 2006 and June 2007, Treasury Department spokeswoman Carrie Fischer Lepore said.

State officials amended the law a year ago to exempt gift cards that do not have expiration dates or dormancy fees. The idea is to persuade companies to drop some of their more onerous restrictions.

Tim Bitto, 30, a bank manager from Conshohocken, would just as well see them all disappear. He prefers to buy and receive actual presents.

"Just recently," Bitto said, while gift-shopping at the Plymouth Meeting Best Buy, "I got something for my birthday. A gift card to an ice creamery."

Deadpan, Bitto said he was disappointed for one very practical reason:

"I don't eat ice cream."

Gift cards top the gift-giving list for the fourth year in a row.

1. Gift cards.

2. Clothing.

3. Toys and electronics.

4. CDs and DVDs.

5. Books.

6. Food and liquor.

7. Cash.

SOURCE: Deloitte & Touche L.L.P.