Stores Come Calling With Prepaid Gift Cards

Macy’s, Gap, Bloomingdale’s and others are promoting prepaid gift cards that take the place of paper gift certificates, hoping to boost sales during the upcoming holiday season.

The cards work like prepaid phone cards. Purchases are electronically deducted from the card’s total amount, which can range from a few dollars to several thousand at tonier stores like Neiman Marcus.

The cards have an important advantage for retailers over paper gift certificates. Consumers using gift certificates receive their change in cash, which can be spent elsewhere. The electronic gift cards keep the money from leaving the store.

Consumer advocates complain that the gift cards could end up costing consumers money. A shopper with a card balance of only a few dollars at an expensive store like Bloomingdale’s has two options, says Ken McEldowney, executive director of Consumer Action: Spend more money to make a purchase, or allow the store to keep the unused balance.

“If the card is a replacement for the gift certificate,” says McEldowney, “there’s no reason why retailers shouldn’t give cash back.”

Nonetheless, electronic gift cards seem to be catching on. Dan Horne, a retailing professor at Providence College in Rhode Island, said sales of gift cards and certificates have been growing 11% to 15% annually since 1993, thanks in part to gift cards. Americans this year will spend between $12 billion and $15 billion on them, he said.

The cards appeal to time-pinched consumers in search of a convenient gift, Horne said. Also, corporations purchase batches of the cards to give to customers.

Retailers view the cards, which usually have the store logo on them and easily slip into a consumers’ wallet, as a form of branding.

“A reusable gift card can be a constant reminder of a store and its brands,” said Joe Enos, a spokesman for Old Navy.

Neiman Marcus is credited with creating the electronic gift card in 1994. The retailer--known for its expensive, not to say extravagant, merchandise--has actually sold cards with values in the $100,000 range, said Billy Payton, vice president of marketing at the Dallas-based chain.

“We launched the prepaid gift card because we believe it can be fun to buy, fun to give and fun to use,” Payton said.

Neiman Marcus has tried to create novelty by offering special-edition cards that can be used only for specific items, such as a card that can be used only for Zegna designer apparel.

The upscale retailer also gives consumers the option of designing their own cards and recently extended that option to companies who want to give a corporate-logo card to employees.

Retailers, though continuing to sell paper gift certificates, are promoting the cards as suitable gifts for hard-to-shop-for relatives and friends. Some store chains are touting them as “collectibles” because some are embossed with images such as fashion photos and holiday-themed art.