U.S. retailers report millions in profits from unused gift cards

Shoppers across the United States have millions of gift cards tucked away in envelopes, drawers and wallets. And some of the country's largest retailers are profiting as a result.

"It can be fun to get them, but then I forget about them," said Deborah Cabaret, 46, who has hundreds of dollars worth of unused cards. "Or I walk into the store, I look around, I don't know what I want and I leave."

Last winter, Best Buy Co. reported a $43 million US gain in fiscal 2006 from cards that hadn't been used in two or more years. Limited Brands Inc. recorded $30 million in 2005 revenue because of unredeemed cards.

Even so, this holiday season is likely to see record sales of gift cards. The U.S. National Retail Federation, a trade group, estimates that shoppers will buy $24.8 billion worth of cards, up 34 per cent from last year.

In Canada, 79 per cent of clothing stores offered the cards last year, according to Statistics Canada. Similarly, 70 per cent of supermarkets sold gift cards in 2005.

Ontario and Manitoba have introduced legislation that would forbid expiry dates on the cards, with both arguing consumers should get what they paid for and should be able to redeem their cards at any time.

About six per cent, or $4.8 billion US, of this year's gift cards will go unused in the U.S., estimated Laura Lane, vice-president of unclaimed property services for Keane Co., a compliance and risk management consulting firm.

Consumer Reports put the figure even higher, estimating that 19 per cent of those who received cards last year had not used them because the cards were lost or expired.

"It can add up to significant dollars," Lane said. "I think the message to consumers is: use it or regift it."

Some gift cards get spent faster than others. Supermarkets and gas stations have close to 100 per cent redemption rates, said Bob Skiba, who runs the gift card division of Ceridian Corp.'s Comdata gift card division, based in Louisville, Ky.

Retailers say they would rather see customers use the cards. In addition, a retailer can't report revenue from a gift card when it is sold. The revenue is recognized as the card is used or after it has gone a long time without being used.

Research also shows that most consumers will spend more than the card is worth, using their own money to make up the difference.