How to Maximize Gift Cards

Kiplinger's is reporting that gift cards are going to be even bigger sellers this year. Here are their major points as well as my comments:

Gift cards will fly off store shelves this holiday season, with the total value of card purchases reaching just over $30 billion, a 15% gain from the same period last year.

Yep, I'll probably be giving more gift cards this year. As my list continually fills up with people who have everything, at least with a gift card I know they'll end up with something they like.

One way to give gift cards and give yourself a bit of a "gift" too is to buy gift cards at stores that qualify for higher credit card rewards levels. For instance, in Michigan, we have a superstore called Meijer that offers groceries as well as general merchandise (for the rest of you, think Wal-mart Superstore.) If Meijer qualifies as a grocery store for purchases (I'm not sure it does yet -- I've made my test purchases but don't have the statement back yet) and you have a Chase Freedom Cash Visa Card, you can buy gift cards there and get 3% cash back (versus 1%.) So you are able to give away a present that people will like while also getting three times the rewards. Everyone wins! ;-)

Retailers will try to get consumers to spend the cards quickly. Expect stores to go to great lengths this year to encourage early redemptions. For example, a shop might add 10% more value to a card if it is used by Dec. 31. Other stores might guarantee another card of smaller value -- say, $5 or $10 -- when the consumer depletes the first one they have. Vendors will also heavily promote sales beginning the day after Christmas, and they'll try to rush out some spring clothing and other merchandise during that period to entice people into stores.

Not to mention post-Christmas sales.

So let's get this straight: I can shop sales AND get an extra bonus like 10% added to the card or money back if I use the card right after Christmas? If this is the case, I'm using it right after Christmas!

Gift cards will account for 7% of holiday gift spending this year, compared to around 4% in 2003. Look for vendors to offer innovative sales pitches, notably offers that combine cards with other merchandise. For example, Home Depot is marketing a card with a hole in the middle that allows it to double as a playable DVD containing short instructional videos on do-it-yourself projects. Other vendors are including discounts for related products or selling the cards along with chocolates and other small items. Gift givers appreciate the bonuses, since they give the present a more-personal feel.

More and more people are giving gift cards and stores will get more and more creative in trying to get their fairshare of the take. A few reasons they're so popular with retailers: stores get their money in advance, they know that most of the people will come back and redeem the cards and spend more than the card's value (extra sales!), and some will not even redeem the cards at all (free money -- though I believe some states force retailers to account for this and/or give it to the state.)

Comments

[FinanceIsPersonal.com]

I received a couple of gift cards for restaurants that I just don't eat at last year and sold them on the gift-card reselling sites, so I turned $40.00 in useless money to a seafood place to $32.00 in cash, not a bad deal at all.

[Kevin]

Speaking of the Chase Freedom Visa, I just got my first full-month bill today. First off, I checked the categories to make sure everything was being coded correctly to the 15 bonus categories, and it looks like it is - I was only off $0.68 in my calculations.

Secondly, I computed what the charges would have earned me on my previous #1 credit card - the Citibank Platinum Dividend. I earned $34.82 this month on just over $2,300 in charges on the Chase card - my top 3 categories were Gas, Groceries and Quick-service restaurants (exactly what I thought when I upgraded the card). On the Citibank card only gas & groceries are considered "bonus" categories.

Refiguring this month's bill under Citibank's rules, I would have earned only $27.35, or $7.47 less than with Chase. That's 27% more earned with the Chase card.

[Amanda D]

Can you tell us which shops are offering an extra bonus on their gift cards?

[Kevin]

Amanda D - it depends on what credit card you use to purchase them. For example, the Chase Freedom Visa offers 3% back at groceries stores, among others, so purchasing a gift card there would yield you 3% instead of the normal 1% earned everywhere else.

[MelMoitzen]

I think Amanda means stores that might give you an extra 10% on top of the value of a gift card.

Hard to say, keep your eyes open. But I suspect if they do make that offer, the fine print will say they won't let you use it in conjunction with other coupons or offers. (And 10%-20% off coupons aren't particularly hard to find at many retailers nowadays.)

[Allison]

Many retailers are also offering innovative gift card packaging with their gift cards. The right packaging can turn a boring gift card into a personalized gift (boxes, tins, etc). Seastone manufactures this packaging, and you will see it this holiday season at retailers like Home Depot, Wal-Mart, Staples, and others.

I miss Meijer. They haven't dared to cross the city lines here and come into Chicago.

[juanny]

Can someone explain what benefit the store has in encouraging people to use their gift cards quicker? They already have your money, so why would they want you to take their merchandise any quicker that they have to? Wouldn't it be in the best interest of the store to have you not use your gift cards at all, or at least delay your purchase as long as possible?

[FMF]

Juanny --

I think it's because people come back and spend the amount on the card and even more (probably much more) and the retailer gets the sales into this fiscal year (which helps out their overall business results.)

[Kevin]

Juanny - FMF is correct. When someone buys a gift card, that is recorded as a liability on the store's balance sheet...not a sale. Yes, they have the cash, but they also have the $25 gift card outstanding that will eventually be turned into a sale when the recipient purchases something.

Not to mention they get rid of inventory quicker, which is another good thing.