Few things are more popular at the holidays than free money in the form of a gift card ... unless it's redeemable at a store you don't like.
Enter the secondary gift card market. Sites like online auctioneer eBay Inc. and SwapAGift.com let recipients exchange their gift cards for cash, usually less than face value of the card, or for another gift card.
In 2004, 64 percent of consumers said they intended to buy gift cards, up from 60 percent in 2003, eclipsing apparel, according to a study by Deloitte & Touche. And as gift cards grow in popularity — they are the most popular gift to give — selling them has also become a trend.
EBay had a $20 Starbucks Corp. gift card up for auction Tuesday with a high bid of $17.50, while SwapAGift had a $102 gift card from luxury jeweler Tiffany & Co. Inc. offered at $100.
"It's the ultimate in re-gifting," said Tara Weiner, Deloitte & Touche USA's National Managing Partner of Consumer Business Industries.
"A gift card is just another product and this is a way to put cash into your hand and value into the hand of another person who wants to shop at that store," Weiner said. The secondary market is alive and well and everyone's happy."
EBay had more than 7,400 listings for gift certificates Tuesday, the majority of which had been posted since Christmas Eve. The company could not provide a comparison with the 2003 holiday season.
When swapping or selling gift cards online, it's impossible to know if the card still has the value the seller says it does. But like with other transactions, a seller risks getting a bad review if the merchandise is not as advertised.
EBay has held discussions with retailers to limit the posting of fraudulent or stolen gift cards, said Hani Durzy, spokesman for eBay.
"There are certain aspects to the gift card trade that may increase fraud," Durzy said. "We don't want people to use eBay as a way to leverage something that they may have done illegally in the physical world."
A seller can only offer one gift card for sale per week and gift cards sold on eBay have a limit of $500.
Buyers should also be aware that some gift cards have expiration dates or fees associated with them if they are not used within a specific period of time, which would eat into the value of the gift card being sold.
While a gift card's convenience is key to consumers, the benefits to retailers come with drawbacks — at least as far as delays in those crucial holiday sales.
Most recipients redeem them shortly after Christmas, pushing sales into a period that for retailers is fraught with heavy discounting.
Why gift cards trump cash
Perhaps the most compelling reason to give a gift card is to avoid handing out money.
Deloitte said people prefer to give gift cards 2 to 1, compared with cash. Although the card's monetary value is known, the giver wants the recipient to buy something special, Weiner said.
"They want the person to get something special and not just pay bills. They want it differentiated from the rest of the cash in their wallet."
Some companies try to offer such a wide array of merchandise that almost no one would not want their gift card.
The secondary market is "a phenomenon we've heard about, it's a natural outgrowth of the popularity of auction sites," said Tim Barefield, chief executive of GiftCertificates.com. This site sells gift certificates for gift certificates, by allowing consumers to give "SuperCertificates" redeemable for gift cards at hundreds of stores, spas, even for travel.
"No one returns a SuperCertificate," Barefield said. You get to choose which merchant you want to go to."