Retail expert says gift cards can help avoid holiday gift return hassles

"The incredible popularity of gift cards has solved many problems and provided a simple solution for everyone," said Richard Feinberg, a researcher with the Purdue Retail Institute. "The Purdue Retail Institute estimates that gift cards represent 10 to 15 percent of all holiday spending. And we've found the unexpected effect that they increase sales."

The institute estimates that consumers on average spent about 20 percent more than the value of the gift card. The institute also estimates that a $100 gift card actually has 25 percent to 50 percent more buying power because of the sales in the stores in January when the majority of the cards are used. Sales are used in stores to clear merchandise left over from the holidays not only to generate cash but also to make room for spring merchandise, Feinberg said.

"Retailers can't officially account for the money on the gift card until it is used," Feinberg said. "So while we may read about sluggish holiday sales, the figures don't account for the gift card that is bought in December but spent in January."

Retailers also gain when a customer with a gift card comes to a store they may never have been in before.

"Retailers spend a significant amount of money trying to get customers in the store, and the simple little gift card does it all with it's very magic," Feinberg said.

However, Feinberg warns that some gift cards have expiration dates after which they cannot be used or can only be used after the gift-card holder pays a fee. In addition, after a certain amount of time, whatever money is left on the gift card goes to the state government, where it was issued and not to the consumer or the retailer that initially sold the card.

"When buying a gift card, look for those that have no fees or expiration dates," Feinberg said. "We estimate that about 10 percent of the value of gift cards is never used because some people lose or forget the card and never use it."

Gift cards also reduce the number of returns during the holidays.

"Returning goods to stores costs all of us money," Feinberg said. "Retailers must repackage and restock goods. Some of the goods returned actually cannot be resold, and retailers eat the cost of those goods. Retailers must have employees deal with all this, and every employee that deals with returns is an employee that cannot provide customer service of some kind."

Returns also have a more personal effect, Feinberg said. Consumers don't buy gifts with the intention that they will need to be returned.

"Gift givers want to have the receiver say, 'Wow! How thoughtful and great this is,'" Feinberg said. "A gift that needs to be returned means that some friend or relative must get in the car, find a parking spot, find the store, get in line and deal with an overworked and underpaid employee who has to abide by the rules of the store."

Even an Internet purchase that needs to be returned is a problem when the customer has to repack it, go to the post office, mail it and hope that the gift giver gets credit or they get a credit or new merchandise.

And retailers have made it increasingly more difficult for consumers to return goods to stores, Feinberg said. The Purdue Retail Institute estimates that about 10 percent of all holiday returns are fraudulent — through the use of fake gift cards or returning items without receipts — costing more than an estimated $20 billion each year.

"Retailers pass the costs of fraud on to the customer, so we all pay," Feinberg said. "Retailers can keep the costs of things lower by reducing fraudulent returns."

For example, to minimize and make it difficult for scam artists to sell fraudulent gifts cards, eBay restricts the auctioning of gift cards to less than $500 and not more than one gift card per week per seller. Some retailers also keep a database of people who return goods and flag frequent returners.

"These restrictions are meant to stop the scam artists, but they may hurt the majority of consumers who just want to return the tie their mother bought them because they don't like it," Feinberg said.

Feinberg's rules for the consumer are:

• Know the return policies of the retailers when making a gift purchase. Do not buy from stores that make it difficult or too expensive for the person getting the gift.

• The use of credit cards provides some degree of protection. Credit card companies will defend cases when the consumers abide by the rules and, the majority of time, will make good on the money lost.

• Buy gift cards.

Writer: Maggie Morris, (765) 494-24327, maggiemorris@purdue.edu

Source: Richard Feinberg, (765) 494-8301, xdj1@purdue.edu

Purdue News Service: (765) 494-2096; purduenews@purdue.edu

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