Consumer Reports Badmouths Gift-Card Industry

Mag Claims $8 Billion Was Wasted on Practice Last Year, Buys Ad in NYT

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NEW YORK (AdAge.com) -- Consumer Reports tomorrow will launch a broadside critique against an unlikely -- and popular -- target: holiday gift cards.
The ad that appears in the Nov. 13 New York Times from Consumer Reports.
The ad that appears in the Nov. 13 New York Times from Consumer Reports.

The magazine is placing a full-page ad in the Nov. 13 New York Times saying that according to its annual survey, more than one in four recipients of gift cards last season failed to redeem them a year later. And that created a financial windfall for retailers across the country.

"It's like flushing $8 billion down the toilet," said Tod Marks, a senior editor at Consumer Reports, who dubbed the cards a "win-win" for retailers.

Similar push last year
It's not the first time the publication has taken on a practice it believes to be detrimental to the public. Last year, the magazine ran a similar campaign cautioning buyers against purchasing extended warranties. It's perhaps one reason why the publication's latest survey found that fewer respondents -- 42% to 37% -- intend to buy one this season compared to last year.

But the magazine may have a bigger fight on its hands this season. Once regarded as an option for the lazy, inconsiderate or time-starved, gift cards are expected to reach $100 billion in sales this season. In fact, according to a recent study by Deloitte, gift cards have become the most popular item swapped over the last four years, with 69% of respondents intending to purchase one this year. Shoppers are embracing them more, too, with only 19% of the Deloitte study believing that they're "too impersonal," down from 22% last year.

"Clearly we want them," said Stacy Janiak, Deloitte's U.S. retail leader. "They're the No. 1 gift because people want to receive them." Even Mr. Marks, one of the architects of Consumer Reports campaign, appreciates the reasons for the cards' growing popularity among consumers.

"It's easy to understand the appeal of gift cards. They're the perfect no-muss, no-fuss gift for the finicky family member or friend." He was also careful not to portray the entire gift-card industry negatively. "[Gift cards] are great for books or restaurants," he said. He wasn't, however, as effusive in his praise for gift cards issued by banks.

Hidden fees and charges
"There are a lot of strings attached to these cards," he said. "Certain types tend to come with a lot of hidden fees," such as expiration dates, activation charges and dormancy fees, a tax levied on the unused amount each month.

Robert Sherman, a spokesman for American Express, a leading provider of such cards, acknowledged charging "modest" fees for the service it provides, but said all charges are fully disclosed on the front of the packaging, on the sticker on the card and throughout the terms and conditions.

"We've taken a lot of steps to educate our consumers about the service charges," he said. And, he noted, AmEx gift-card recipients haven't complained about the cards. "They are responding very, very favorably to our product."

However, the Consumer Reports study suggests that shopper behavior may not match their professed enthusiasm for gift cards. For instance, of the 27% who didn't redeem the full value of their cards last season, nearly a third indicated they "forgot about it" while 35% said they "have not found anything" they wanted to buy. In addition, nearly six in 10 indicated they simply didn't have the time to redeem the card.

That's the precise reason why Mr. Marks and his team put together the public-information campaign, with an accompanying holiday-shopping hub with tips on how to avoid gift-card snags on ConsumerReports.org.
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