• by Karlene Lukovitz  @KLmarketdaily, January 16, 2008

Despite regulatory issues and consumer concerns about added costs and expiration dates, gift cards will continue to grow by 5% or better over the next five years, according to a new Packaged Facts report on the U.S. market for prepaid cards.

The report, which focuses on gift cards, estimates that gift-card sales rose 5.6% to $40.5 billion last year, and will reach $52.2 billion by 2012.

Average annual gift-card expenditures rose from $281 to $288 between '06 and '07, and are expected to reach $326 by 2012.

Nearly two-thirds--62%--of all U.S. adults purchased at least one gift card in 2007, and PF projects that this will rise by 1 percentage point per year, to reach 67% in 2012.

During the 2006 holiday season, 18.8% of card purchasers spent $100 or more on cards, 15.7% spent $25 to $49, 14.7% spent $50 to $99, and 10.4% spent $5 to $24.

Furthermore, among those who purchased gift cards during the past 12 months, 35% say they plan to spend more on these cards during the next 12 months, and 9% said they expect to spend "significantly more" on them. About 60% expect to spend the same amount on the cards, while just 6% said they'll spend less.

Cards' continuing growth is being spurred by consumer recipient preferences, as well as the convenience for the card purchaser. According to a late '07 BIGresearch survey conducted for the National Retail Federation, gift cards/certificates are the top gift preference of most people age 18 and over: 53.8%. They are the top choice of 62% of women, although they come in #2 among men (45% prefer cards, but 52% prefer books, CD's, DVD's, videos and video games).

In fact, Retail Forward data cited by PF estimates that during the 2006 holiday season, fully 24% of all U.S. households received a Wal-Mart gift card, and another 13% a Target card.

These and other retailers are seeing decided benefits from card use. Consumers tend to spend more than was loaded on their gift cards, and January retail sales, which were traditionally the year's slowest, have been increasing at double-digit rates since 2000, according to the report.

Cards are also showing growth in use for non-holiday giving. American Express, which has reportedly seen its card transaction volume double every year since 2002, now sells most cards from January through November, notes PF, the publishing division of MarketResearch.com.

To continue to grow card volume and profitability as the market heads toward saturation, PF stresses that retailers and card issuers will need to continue to innovate in packaging and merchandising. The analysts cite examples such as Circuit City's introduction of a plain white card with boxes of crayons attached as gifts for children, and cards with audio messages from retailers ranging from Target to Lands' End.

PF points out that gift-card growth could be hampered by consumer concerns about extra fees and expiration dates on many cards--particularly national (or "open loop") cards, as opposed to store ("closed loop") cards. However, the analysts also note that the industry shows movement toward removing certain fees from cards in order to increase their desirability.