Gift cards scrutinized – Inside Retail, Issue 1890 – 16 Dec 2011

This article, by Emilia Terzon appeared in the Inside Retail newsletter in December.

The terms on which retailers sell, promote and exchange gift cards in Australia could change following a nationwide investigation into “whether consumer detriment is caused by [their] purchase and use”. The Commonwealth Consumer Affairs Advisory Council (CCAAC) issues paper released last week says the current Australian system has become flawed as retailers increasingly compete to offer “more attractive branded gift card products”.

Expiry dates are under particular scrutiny due to great discrepancies in length between retailers, with industry suggestions that all cards should be extended to a shelf life of four years.

Neil Joseph, CEO of Endless Rewards, which creates cards for names like Ribs & Rumps, Oshkosh, and Rodney Clark, disagrees with the CCAAC that expiry dates are causing confusion to customers.

“None of our clients have complained about this. They support the product as it drives incremental business, and they use gift cards as rewards for customers and staff,” he says.

“I am not aware of any major concerns in the local industry.”

A regional retail manager for an Australian high end fashion boutique chain told Inside Retail she had no significant problems with gift cards expiring or not being able to be redeemed.

“We like to be helpful with our customers, so if their gift vouchers expire we usually organise extensions for them. We don’t sell large amounts of them though, it’s more a service as such,” she says.

The bulk of the market currently offers a two year expiry period, this being the gold standard for Coles, Myer, JB Hi-Fi and David Jones, with a few giving an infinite date on exchange, as seen with Bunnings.

Terry Smart, CEO of JB Hi-Fi, says the entertainment retailer has no issues with its gift card policy, but that “we would not object to a consistent mandatory expiry time frame across all cards” – even if that means terms of four years.

He says JB Hi-Fi has a low level of complaints from customers due to its individual stores being “empowered with the discretion to reissue new cards in most circumstances where customers have been disadvantaged due to expiry or discovery after being lost”.

Estimates from the financial year ending June 2010 place the gift card industry’s worth at $1.5 billion. Some statistics claim around 25 per cent of vouchers as not redeemed each year, however, JB Hi-Fi says its rate is much lower at between one and two per cent.

The CCAAC report says overall the sector is still in its infancy, but “there are signs of an emerging secondary market for gift cards in Australia”.

Sites like CardLimbo.com.au have been at the forefront of this latter sector, with the e-commerce onseller allowing consumers to buy and sell unwanted vouchers, often at a discounted price to the card’s face value.

Yet there have been suggestions – notably via the tabloid current affairs program Today Tonight – that sites like this are adding to consumer confusion, with expiry dates on cards sold by secondary traders varying greatly.

Russell Zimmerman, executive director of the Australian Retailers Association (ARA), says confusion over expiry dates is sometimes the result of “a communication breakdown between the giver and the receiver of the gift card”.

“Gift cards are often bought by someone to give to someone else as a present… It is important that the giver of the gift card clearly communicates the terms and conditions of the gift card to the receiver.”

According to an ARA consumer survey, during Christmas 2011 73 per cent of consumers are planning to give either gift vouchers or money as presents.

“Four or five years is an unreasonable amount of time for the expiry of a gift card, as the outstanding gift card is seen as a debt or liability on the business unless it is redeemed within a reasonable period of time,” says Zimmerman.

Endless Rewards’ Joseph agrees with these sentiments, saying that an expiry of no more than 24 months is more realistic.

“What I would recommend is that retailers and sellers of gift cards online are encouraged to become members of a recognised industry body such as ADMA, which will give purchasers confidence in the supplier,” he says.

The issues paper is also seeking response on the restriction of low value use (where cards cannot be used to purchase items below a certain value), bank fees and charges, limitations with affiliated merchants, and store policy on receiving change.

Terms and conditions in the event of insolvency are being scrutinised, as seen with the collapse of RedGroup and the subsequent consumer outrage when affiliated gift cards were unable to be redeemed.

In that example one of its acquirers, SupaNews, attempted to honour defunct gift cards by offering 25 per cent off to voucher holders on purchases up to $1000.