Gift Cards: Tips for Picking the Ones People Actually Want This Christmas

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Gift CardsGift cards get more popular with American shoppers every year. According to CEB TowerGroup, there will be $110 billion in gift card purchases by the end of 2012, a 10% increase over last year.

And on the other side of the gift equation, people are more than happy to receive them in their stockings: A consumer survey by the National Retail Federation declared gift cards to be the most-desired gift this holiday season, with 60% of respondents saying they'd like to get one.

The tricky bit is making sure you get your friends and family gift cards to stores where they'll actually want to shop. After all, the whole point of getting a gift card instead of giving cash is to make you appear thoughtful, which backfires if your choice of card reveals your total ignorance of their shopping habits and interests.

So which type of gift card is your best bet?

1. Go Big or Go Home

GiftCardGranny, a site that allows consumers to buy and sell gift cards, analyzed thousands of gift card alerts set up by its users to determine which retailers' cards were most in-demand. Walmart (WMT) took the top spot, narrowly edging out Target (TGT). Amazon (AMZN) ran a close third.

What these three retailers have in common is their size and selection: Walmart and Target are everywhere, Amazon is ubiquitous online, and each offers a wide selection of products in nearly every conceivable category. If you don't know your nephew well enough to know his favorite store, get him a gift card to one of these three retailers and it won't matter if he's into sports, music, video games or clothes -- he'll probably be able to find something he's looking for.

And with GiftCardGranny and similar sites creating an open resale market for gift cards, we can see further evidence that the big, all-purpose retailers are most popular. At exchange site PlasticJungle, Walmart gift cards sell for just 2.5% off their face value; by contrast, Barnes and Noble cards can be had for 18% off. Likewise, CardCash.com has discounts of only a few percentage points on gift cards from big department stores like Sears and Macy's, while gift cards for specialty apparel retailer Children's Place can be had for 13% off face value.

Plastic Jungle CEO Margaret Mackenzie wouldn't say which cards people are most likely to try to unload after the holidays, but she did confirm that the going rate s are indicative of the demand for each type of card.

"It's based on supply and demand of our product, and cards that move very quickly sell for more," she says. "The types of things that people are really interested in buying are everyday-spend [cards] -- gas cards, travel cards and big-box store cards. The places where we spend all the time, those are the brands that are really going to fly."

2. Make it Special

If a gift card to a megastore like Walmart doesn't seem personal enough, we also have a bit of data on which specialty shops are most popular. In that GiftCardGranny analysis, hardware store giants Home Depot (HD) and Lowe's (LOW) ranked fifth and sixth, respectively, making them solid choice for the handyman or handywoman in your life. If your recipient is looking for home goods, Bed Bath and Beyond (BBBY) ranks 16th. And Subway and Starbucks (SBUX) are popular choices for food and beverage gift cards.

How about specialty apparel retailers? We asked the folks at Harris Interactive to include a question about gift card preferences in their regular weekly consumer survey, with a focus on specialty apparel. Victoria's Secret was the runaway winner among female respondents, with 25% of women identifying it as the retailer for which they'd most like to receive a gift card. Among men, the most popular choice was L.L. Bean, with 15% saying they'd like to get a gift card there. L.L. Bean and Ralph Lauren (RL) placed second among women and men, respectively, with each receiving 10% of the vote.

Whatever retailer you decide to go with, the relatively low demand for these specialty stores means that you can get a good discount buying your cards at an exchange site or other discount retailer. At CouponTrade, for instance, an $89 gift card to the Limited is selling for $71 as of this writing, a 20% discount; Plastic Jungle, meanwhile, was selling a $100 gift card to Urban Outfitters for $82.

3. As Good as Cash

If you truly have no idea where your intended recipient likes to shop, a third option is to simply purchase a general-purpose gift card from a major credit card network like Visa, which can then be used anywhere a debit card from that network is accepted.

"The funds wont be held captive like they would with a retailer gift card," says Brian Riley, senior research director at CEB TowerGroup. The downside, he notes, is that these generally have a purchase charge on top of the gift card's value. When we checked out the gift card rack at the local drugstore, we found American Express and Visa gift cards each available with a $4.95 purchase charge.

Riley points out that the fees associated with such cards have actually been "cleaned up significantly" by the consumer-protection aspects of the CARD Act. But government regulation of gift cards hasn't extended to fraud protection: Gift cards, whether retailer-specific or general-purpose, remain untouched by rules limiting the consumer's losses in cases of fraud. That means that if the balance on your gift card suddenly disappears, you're out of luck.

No gift card is perfect, then. General-purpose cards and ones for popular big-box retailers will cost you face value or more; gift cards for specialty retailers can be better deals, but run the risk of missing the mark; and none of them carry any kind of fraud protection like debit and credit cards do.

Still, the demand from consumers is clearly there, and they're certainly a safer bet than getting your niece a toy she might hate (or already has). If you know even a little bit about your intended recipient, you can make an educated guess and hope for the best -- or just skip the plastic and stick some cash in a cute greeting card.


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Gift Cards: Tips for Picking the Ones People Actually Want This Christmas

Both Costco (COST) and Sam's Club (WMT) routinely offer other retailers' gift cards at less than face value. Costco, for instance, has a full slate of restaurant gift cards available at a 20 percent discount on purchases of $100. Sam's Club offers discounted gift cards for a variety of uses, including iTunes, video game networks, and restaurants.

Programs from credit card issuers like Discover Financial (DFS) and JPMorgan Chase (JPM), among others, offer gift cards as ways to redeem miles. Discover has a long list of partners that give you an extra 10 percent to 25 percent in value on their gift cards when you use your Cashback Bonus to buy them, and a select few let you double the value of your rewards. Chase has similar deals.

Many stores encourage gift card purchases by sweetening the pot. For instance, one popular deal involves buying $20 or $25 in gift cards for someone else and getting a $5 card on the side, which you can either pass on as an additional gift or keep for yourself.

You can routinely find sellers on eBay (EBAY) looking to get rid of unwanted gift cards. There won't be many deals to be had on gift cards from hot retailers like the Apple (AAPL) Store, but with some less in-demand gift retail cards, you can find discounts as high as 20 percent -- or even more.

A word of warning, however: Since the chances of running into fraud from buying gift cards second-hand is higher than purchasing from known outlets like Costco, make sure that the auction site you use offers buyer protection.

In the past several years, a number of card exchange websites, including Plastic Jungle, Cardpool and Gift Card Granny, have popped up. These sites offer to buy unwanted cards from gift card recipients in exchange for cash, and then turn around and offer them back to gift card shoppers at a narrower discount, pocketing the difference. Again, be sure you're working with a reputable card exchange before you hand over credit card information to buy discount gift cards.

You can often find gift cards and certificates on Groupon (GRPN) and similar daily-deal websites. Most of the deals involve locally based retailers. Occasionally, though, well-known companies will offer national deals that everyone can take advantage of.

Retailers encourage repeat visits after the holiday season is over by handing out free gift cards when you make purchases above a certain amount. For instance, L.L.Bean is offering a free $10 gift card when you spend $50 or more through Dec. 24.

Gift cards offer a win-win scenario to shoppers desperate to finish their holiday shopping and companies wanting to lock in sales. By realizing the leverage you have in making a great deal and putting in a little extra effort, you can pick up the gift cards you want while getting the savings you need.

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Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.


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