Sales of gift cards fell last year, and they're expected to fall again this year. They're still one of the most popular gifts items, but as unemployment and inflation have transformed everyday indulgences into unjustifiable luxuries, gift cards have changed, too. Once an invitation to impulse purchases, they're becoming a strategy for gift-givers to help friends and family weather economic storms.
As my DailyFinance colleague Matthew Scott recently noted, the gift-card economy has shifted over the past year from retailer-branded cards to cards that function as cash or credit cards. Part of this may be a holdover from last year's parade of bankruptcies; as Linens & Things and The Sharper Image crashed and burned, their cards suddenly became worthless. Visa (V) and American Express (AXP) gift cards may lack a store's branding appeal, but they're far more likely to survive a downturn.
Part of the shift move may also lie in gift cards' viability as a form of low-level banking or overseas money transfer. These cards often have significant fees, but they're still cheaper than wire transfers, and they let users save and move money easily without resorting to cash. In this respect, they fill a necessary gap: The economic crisis may have reduced credit access for lower-income consumers, but it hasn't reduced those consumers' need for credit or the easy flow of cash. Cash cards and gift cards let these consumers fulfill their banking needs -- albeit at a premium price.
Giving the Gifts of Utilities and Health Care
Another indication that gift cards are filling a need in the economic crisis is the growing popularity of special-purpose cards. Credit-branded gift cards let users spend their money on an endless array of items, which makes them problematic for gift-givers concerned about their loved ones' inability to spend wisely. Some utilities now sell prepaid gift cards that can be applied directly to an energy bill. They're decidedly unsexy, but they offer a delicate, indirect way to help a relative keep the lights on. Another common casualty of lowered economic circumstances is health insurance, so various health care providers are offering cards that cover prepaid doctors' visits, services, and even insurance premiums.
Utility and health-care cards also offer a solution to the growing gift-card trend for exchanges. As gift cards become ever more common, more sites now let cardholders sell or exchange their cards. On the surface, companies like Gift Card Buy Back and Gift Card Rescue effectively make the brand on the card irrelevant, as consumers can move their gifts from place to place with minimal difficulty. Of course, these services don't come cheap: Even the best of them offer only 80 cents on the dollar, and most give back much less.
As the Salvation Army expands its cadre of bell-ringing Santas who accept credit cards, charity itself is becoming far more plastic -- in all senses of the word. With gift cards providing an attractive cover for charity, retailers will probably keep losing sales to more flexible and useful methods of cash transfer.
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