Christmas not in the (gift) cards this year

Gift cards seem to have lost their luster.

The cards are expected to ring up just 5 percent of holiday sales this season, down from 12 percent last year, according to a survey of retail executives by BDO Seidman.

Many people are turning to what they consider a more practical gift for tough times -- cash. Some consumers also worry about buying gift cards at stores that might not be around in 2010. Others say fees or declining values make gift cards a hassle. The majority of shoppers simply are spending less overall, and that includes gift cards.

Retailers rely on the cards for a post-holiday sales boom, and a second year of gift-card declines would bring more unwelcome news.

"It's not the thing I get unless I'm desperate for a gift," said Kelly Sellke of St. Paul, who was out shopping with a friend earlier this week at Southdale Center in Edina. "They just don't seem that thoughtful."

Consumers had been steadily snapping up more gift cards until last year, when the bottom dropped out of the economy. Cash tops the wish list of consumers this year, according to a GfK Roper survey for Western Union Co. About 45 percent said they need the cash to pay for gas, groceries and bills.

Hoping to restore their cachet, stores this season have turned on the gift-card charm. Cashiers at big boxes and bookstores are hawking the cards in checkout lanes, while restaurants and retailers are pushing promotions that offer gift-card buyers a free splurge for themselves.

Even Sellke is eyeing an offer at her favorite restaurant, the Highland Grill, which gives away a $25 gift card with every $100 card: "I'm tempted to do that, but I haven't yet."

General-purpose gift cards

The use of cards as an incentive for sales, rather than a stand-alone offering, hit its stride last year, according to First Data Corp. Most cards must be used up quickly, often by Jan. 30, 2010, to spur customers back into stores swiftly.

Despite the promotions, gift-card sales remain weak this year, according to a survey taken last weekend by America's Research Group and UBS. Just 49 percent of consumers have bought them so far, down from 53 percent this time last year.

Consumers are much less interested in buying gift cards that can be used only at specific retail stores, and are preferring general-purpose gift cards from Visa, MasterCard, Discover and American Express. Sales of store-branded cards are expected to fall by 7 percent this holiday season, while general-purpose cards will rise by 3 percent, according to TowerGroup.

At Cub Foods, sales of store-branded gift cards are "meeting expectations," said spokeswoman Haley Meyer. But sales of iTunes, Visa, American Express and MasterCard have seen double-digit increases.

Rogers-based Archway Marketing, which expects to ship out 500 million gift cards this year, said business is up 10 percent. The increase has been driven by video-gaming cards and general-purpose gift cards from the credit companies.

Best Buy bucks trend

Richfield-based Best Buy Co. Inc. may be on track to buck the trend. Gift-card sales on Black Friday weekend were double last year's amount, and increased 40 percent in November.

Best Buy's customers historically spend two times the value of gift cards when they redeem them, CEO Brian Dunn said Tuesday in a conference call with analysts, which has "contributed meaningfully" to post-Christmas business in years past. At the eclectic gift store, Patina, the cards remain popular, said Ann Seehos, manager of the Bryant Avenue store in Minneapolis. Shoppers are buying smaller increments than in years past, she said, but "people are adding a little something to go with it, to make it a little more substantial."

Not so at Patina, said Seehos. With five locations and a new store called Shoppe Local that opened in October, "people think of us as stable," Seehos said. "More than any nervousness about whether we'll be around, people are excited to be able to support local businesses."

Retailers trimming inventory to avoid steep markdowns may throw another wrench into gift-card sales. In previous years, shoppers turned to gift cards when items were out of stock. But this year, the post-holiday pickings may be slim.

"For people who get gift cards this year, it's going to be interesting," said Nikki Baird of Retail Systems Research. "What will be available to redeem with that gift card come January? I'm not sure there's going to be a lot. And it's not going to be at 90 percent off either."

Even if gift-card sales are down, retailers are holding out hope for consumers like Jonathan Arnold of Apple Valley. He's never bought a gift card: "Too impersonal," he said.

But, a co-worker once gave him one for Banana Republic.

The amount he ended up spending? About $150.