- The Washington Times - Sunday, November 23, 2008

Gift-card spending is expected to decrease this year, adding to a growing list of retailer worries heading into a nervous holiday season.

Shoppers are not only buying fewer cards, they are buying less-expensive cards or spending their cash on sale items instead. Some shoppers are worried that stores that issue the cards won’t be there after Christmas.

“It’s kind of a perfect storm for gift cards,” said Ellen Davis, vice president of the National Retail Federation (NRF).

The D.C. trade group expects gift-card sales to decline 5.6 percent this year, but the cards will still account for a hefty $25 billion worth of holiday spending.

And gift cards are still a safe bet, Ms. Davis said.

Only 3 percent of 8,000 consumers recently surveyed by the NRF expressed concerns that the retailer they purchase a gift card from could go out of business.

The fear stems in part from Sharper Image’s problems when the upscale gadget retailer declared bankruptcy in February, according to Kevin Regan, senior managing director of corporate finance with FTI Consulting in Ann Arbor, Mich.

At first, the company stopped accepting the more than $20 million worth of gift cards it had issued. Later, a bankruptcy judge allowed Sharper Image customers to use gift cards if they spent more than twice the value of the card on a single purchase.

“Sharper Image is the poster child” for the gift-card image problem, Mr. Regan said.

Although some consumers are concerned that their gift cards will be useless if a retailer goes under, that is not likely to happen, Ms. Davis said.

“Most gift cards are safe,” she said. “In fact, most companies are safe.”

Even if a retailer does declare bankruptcy, judges can decide on a case-by-case basis whether to allow gift cards to be redeemed.

Companies that have filed for bankruptcy protection and are reorganizing are less risky than those that are liquidating assets, according to Mr. Regan, because they are trying to maintain their customer base for when they get back on their feet.

If shoppers are concerned about a retailer’s stability when purchasing a gift card, Mr. Regan recommends they buy a gift card issued by a major credit-card company or by a mall instead of a single store.

For the most part, consumers shouldn’t worry about putting gift cards in Christmas stockings this year, said Cynthia Cohen, president of Miami retail-strategy firm Strategic Mindshare.

“With a major retail chain, you should feel completely comfortable,” she said. “Anyone who was going to collapse already has.”

One place to reconsider whether to buy a gift card is at a local independent store, where Ms. Cohen recommended shoppers purchase gifts in cash so the store can register a sale. Gift cards are not logged as sales until they are redeemed, which can be weeks or months after the holidays.

Nevertheless, Ms. Cohen said there are plenty of reasons to buy a gift card this year.

Retailers are managing their inventories more tightly this shopping season to avoid having holiday leftovers, which may leave shoppers holding out for deep discounts empty-handed after Christmas.

“This downturn in the economy is no secret to retailers,” Ms. Cohen said. “Retailers have cut back on their inventories.”

With the economic downturn, gift cards are a good option for shoppers who want to make sure the gifts they give will not go unused. “I think that motivation is even greater this year,” she said.

Mr. Regan said some of the more popular gift cards this year will be practical ones from gas stations, grocery stores and restaurants. “A full tank of gas may be a real Christmas gift,” he said.

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