Gift cards seen as no holiday bargain in tough times

Gift cards - usually a Christmas cash cow for merchants - won't be a big seller this year.

Total gift card sales for the 2008 holiday season will plunge 9 percent to $88.4 billion, according to a report released yesterday by the Needham research firm TowerGroup. The decline is largely due to the slowing economy.

Merchant-sponsored gift cards will take an even larger hit - a 14 percent decline - because of a decrease in retail sales, lack of consumer confidence in retailer-sponsored gift cards, and a shift to more flexible gift cards from financial institutions that can be used to buy groceries and gasoline.

Brian Riley, a research director at TowerGroup, said in the report that consumers are more concerned about the potential risk of retailers collapsing and gift cards losing value in the event of a bankruptcy.

"The sensitivity heightened in 2008 following the bankruptcies of ... Linens 'n Things, and Sharper Image, where more than $100 million in gift card value became compromised in the wake of retailer filings," Riley said.

TowerGroup is projecting a larger drop than the National Retail Federation, a Washington, D.C., trade group, which is expecting a nearly 6 percent decline in gift card sales. Fewer people plan to purchase gift cards this year - 53.5 percent compared with 56.6 percent last year - and gift card shoppers will be spending less overall on the cards - $147.33 compared with $156.24 in 2007, according to a recent retail federation survey.

"Since gift cards never go on sale, some price-conscious shoppers will be passing up gift cards in favor of holiday bargains," said Tracy Mullin, the federation's chief executive.

Jenn Abelson can be reached at abelson@globe.com.