The popularity of store gift cards is plummeting, according to research and advisory firm TowerGroup.

The reduction in card spending is reflective of less confidence in retailer inventories and stability. TowerGroup expects store gift-card spending volume to fall by 7%, with a modest increase of 3% in general-purpose cards in 2009, according to "Gift Cards: Still Better to Give than Receive," a report released today.

As it turns out, recipients would prefer not to receive them. A Consumer Reports survey in October stated that only 15% of consumers actually want gift cards.

If TowerGroup's predictions come to fruition, this would be the second annual decrease in private-label store gift cards. Volumes for gift cards will decrease slightly in aggregate during 2009 -- from $91 billion to $87 billion, according to the report.

Store gift cards fall into three categories: restaurants, retailers and miscellaneous. Consumers are expected to make more practical choices in each category: Fast food will perform better than white-linen dining; discounters will perform better than high-end specialty stores and niche players like local stores will experience the greatest negative impact.

"The attractiveness of captive store gift cards appears to be waning, particularly in an economy in which retail inventories are shrinking and consumption is concentrated on more practical purchases like food, gasoline and heating oil," said Brian Riley, research director, bank cards, at the Needham, Mass.-based TowerGroup.

This is a buyer's market in which consumers can expect heavy discounting from retailers on non-gift card purchases, Riley says. But since inventories won't be backed up in stockrooms, but will be out on the sales floor until depleted, delayed shopping -- the natural arena for gift card spending -- can lead to a diminished selection. As a result, unlike other years, store gift cards might be limited to post-holiday leftovers.

"This year, it might make sense to buy that cashmere sweater early or give a card that does not bind the recipient to a particular store," Riley says.

Consumers who are purchasing store gift cards should also be careful because protections under Title IV of the Credit Card Accountability and Responsibility and Disclosure (CARD) Act will not go into effect until August 2010. These protections require enhanced disclosure on fees and require that cards be given at least five years of transaction capability before expiration.

While Title IV of the CARD Act provides protections that will amend the Electronic Payments Transactions Act (EFTA), it is silent on the issue of ensuring that store gift cards do not lose value when a retailer files for bankruptcy. It also does not create an environment in which cardholders can dispute transactions, as they can on their credit and debit cards.

"One hundred million dollars in loaded gift card value became compromised when retailers such as Sharper Image and Linens 'n Things failed in 2008," Riley says. "It is important for the payments industry to ensure that consumers receive full value, particularly as the payment card industry reengineers itself in 2010."

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