Retailers bank on unused gift cards

By Associated Press

Shoppers across America have millions of gift cards tucked away in envelopes, drawers and wallets. And some of the nation's largest retailers are profiting as a result.

"It can be fun to get them, but then I forget about them," said Deborah Cabaret, 46, who has hundreds of dollars' worth of unused cards. "Or I walk into the store, I look around, I don't know what I want, and I leave."

Last winter, Best Buy (BBY, news, msgs) reported a $43 million gain in fiscal 2006 from cards that hadn't been used in two or more years. Limited Brands (LTD, news, msgs) recorded $30 million in 2005 revenue because of unredeemed cards.

Sales still rising

Even so, this holiday season is likely to see record sales of gift cards. The National Retail Federation, a trade group, estimates that shoppers will buy $24.8 billion worth of cards, up 34% from last year.

More places offer gift cards these days, including drugstores, jewelers, spas and even supermarkets. Shoppers are buying cards with higher dollar values, and more stores are packaging the cards with accessories to make them look less like plastic money.

About 6% of this year's gift cards will go unused, estimated Laura Lane, the vice president of unclaimed property services for Keane, a compliance and risk-management consulting firm.

Consumer Reports put the figure even higher, estimating that 19% of those who received cards last year had not used them because the cards were lost or expired.

"It can add up to significant dollars," Lane said. "I think the message to consumers is: Use it or 'regift' it."

Some gift cards get spent faster than others. Supermarkets and gas stations have close to 100% redemption rates, said Bob Skiba, who runs Ceridian's (CEN, news, msgs) Comdata gift-card division, based in Louisville, Ky.

"You don't have to buy a sweater every day, but you do have to eat and fill up your car," Skiba said.

Retailers say they would rather see customers use the cards.

"They have money in their pockets that's pointed to our store," said John Fleming, Wal-Mart Stores' (WMT, news, msgs) marketing chief and a former Target (TGT, news, msgs) executive.

In addition, a retailer can't report revenue from a gift card when it is sold. The revenue is recognized as the card is used or after it has gone a long time without being used.

Hot gift: Hot coffee

Research indicates that most consumers will spend more than the card is worth, using their own money to make up the difference.

A case in point is Starbucks (SBUX, news, msgs), the Seattle coffee retailer whose heavily promoted reloadable gift cards are among the hottest gifts of the holidays.

About 96 million Starbucks cards have been activated in the United States and Canada since November 2001, and customers have reloaded their cards about 38.6 million times, bringing in $2.17 billion in revenue.

If there are eight people in line at a typical Starbucks, chances are one of them paid up before even setting foot in the store.

"It's unique in the sense that most retailers aren't the kind where you have that everyday purchase," said Scott Krugman, a spokesman for the National Retail Federation, a trade group based in Washington, D.C.

In early November, Starbucks started offering its card in Britain, selling so many it had to order more than double the number in the initial batch to keep up with demand. The card is also available in Australia, Germany, Greece, Japan, Spain and Thailand.

Registered Starbucks cardholders, who number about 2 million, can reload their balances at a cash register or online, or sign up to have their banks automatically reload their cards whenever they dip below a certain balance.