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There might be more gift cards under the tree, but many go unused

Americans will spend a record $25-billion on gift cards this holiday season, giving family and friends the plastic equivalent of everything from a tank of gas to an Olive Garden dinner to an iTunes song.

But receivers beware: Sock drawers, junk boxes and wallets are expected to gobble up a good portion of that spending. Analysts say $8-billion worth of gift cards - 10 percent of all bought throughout 2006 - will go unspent.

That trend is a concern for retailers, who generally can't count gift cards as income until they are redeemed, and a potential windfall for state governments, who may collect the funds as unclaimed property.

Created as a replacement for the gift certificate, gift cards are being sold by everyone from pharmacies to department stores to gas stations. Gift card sales are expected to continue to rise - by as much as 34 percent this season - as small retailers jump on the bandwagon.

And for retailers of all kinds, the advantages of selling gift cards far outweigh any potential drawbacks.

"When the majority of people redeem a $100 gift card, they buy $120 worth of products, and that's what retailers are looking for," said Dave Hogan, chief information officer of the National Retail Federation. Convenience is driving sales.

More sales, however, means more gift cards left unused.

Gift cards generally go unspent for two reasons. They are lost or ignored by the receiver or they are not entirely spent.

"The reason people don't spend their cards is that they perceive they have no expiration date - I have a drawer full of them," said Brian Riley, senior bank card analyst for TowerGroup of Massachusetts.

His firm estimates that 10 percent of all cards go unclaimed.

With lost and unused cards adding up to billions of dollars each year, Congress has begun to take notice. Some contend regulation is needed.

Regulating gift cards is generally left up to individual states, and their policies vary widely. Some allow retailers to record cards as income after a certain waiting period or expiration date.

Others take possession of the cards as unclaimed property, just as they would unclaimed payroll checks or accounts receivable.

That means the store must consider card balances a liability and not income.

Cards - like any unclaimed property - can always be repossessed by the rightful owner. Only a small percentage is ever reclaimed. Unclaimed values can become part of the general fund.

Many retailers are getting creative to capture more of the growing gift card market.

Wal-Mart, Target and others theme their cards around movie and children's characters and change their designs several times a year. This year Wal-Mart is allowing customers to put their own photos on gift cards through its photo department.

Kroger and CVS Pharmacy are among the retailers who sell other cards besides their own. This holiday season Kroger will offer about 60 cards, including Home Depot and American Express.

At Macy's, gift card buyers are encouraged to bundle their purchase with a mini Santa Bear card holder or a box of chocolates that displays the gift. All cards come with a tiny Macy's bag to wrap the card in.

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