Gift card sales may reach $35-40 billion

The popularity of gift cards continues to rise, with holiday sales forecast to hit $35 billion to $40 billion this year, says Purdue University retail expert Richard Feinberg.

Because of the economy Feinberg, a researcher with the Purdue Retail Institute, predicts a significant increase in gift card sales for grocery stores, gas stations and superstores (such as Wal-Mart, Super Target, Sam's Club and Costco) due to the economy.

Feinberg reports that most gift cards purchased are for department stores (about 40 percent). Restaurant gift cards rank second and account for 30 percent of sales.

On average those receiving gift cards spend about 20 percent more than the value of the gift card they receive, says research at the institute. They also note that most cards are redeemed after Christmas and New Years. This means they are not counted in holiday sales figures.

"The increasing amount spent on gift cards means that the sluggish holiday retail spending we predicted earlier is somewhat misleading because retailers cannot count gift card sales until the card is used," Feinberg says.

Consumers can protect themselves from fraud by purchasing gift cards directly from a retailer or a retailer's Web site. He says people should be wary of buying cards from third-party vendors online and should never buy one with the personal identification number on the back intact.

Most gift card fraud, Feinberg says, occurs when thieves steal credit cards, purchase gift cards and then use or sell them. People also get defrauded by going to a retailer online and buying cards that do not have the value promised.

Home and renters' insurance and credit card companies sometimes protect against lost gift cards, says Feinberg.

"Buying gift cards on credit cards has additional protection since most credit card companies include 'chargeback' rights if the retailer does not honor the gift card," he says.

Consumers should be wary of purchasing gift cards from retailers who are in bankruptcy or about to go into bankruptcy. They are not legally obligated to back up the cards, says Feinberg, although they may.

More information on gift cards is available from the following Web sites: creditcard.com, www.plasticjungle.com and the National Conference of State Legislatures (http://www.ncsl.org/programs/banking/GiftCardsandCerts.htm).