Retail: Vouch for failure

We give companies £240m a year in unused gift cards. What's wrong with a tenner in an envelope?

Beloved of great-aunts and last-minute shoppers, gift cards may be convenient presents to give at Christmas, but they are also one of the riskiest. As anyone who holds one for Comet will attest to. When the electrical-goods store became the latest high-street victim of the recession last week, its administrators, Deloitte, immediately announced that, despite stores remaining open and trading, gift cards and vouchers would be suspended. It may seem unfair not to honour the vouchers, but once administrators are in charge, they are allowed to change the rules applying to vouchers and cards – and many of them do. However, by Tuesday, Deloitte announced that the suspension on Comet vouchers had been lifted.

People with vouchers for JJB Sports lost out recently when the sports store went into administration, as did those with ones for Peacocks at the beginning of the year, the reason being that people with vouchers effectively become creditors of the company once it goes into administration. They must take their place alongside others owed by the company, including banks. But being unsecured creditors, they are seen as the least important.

We're a nation of voucher givers. We spent £4bn on them last year (up 12 per cent on 2010) and it is estimated that this Christmas we'll give £1bn worth of vouchers and gift cards (up nine per cent from last year). The average gift card is worth £25. But last year, customers failed to redeem £240m of cards and vouchers, meaning the money just went directly to the stores. Holders either don't realise that the cards have an expiry date or fail to use the full amount on their gift cards. Some six per cent of cards and vouchers are never spent.

However, if you're still keen to spread seasonal goodwill with store cards, Martin Lewis of MoneySavingExpert.com has some tips. "First of all, think about the solvency of the company. The likelihood is that Marks and Spencer and Apple are going to be all right," he says. "If you want to spend more than £100 I would buy them on a credit card (paid off in full) because of section-75 laws (of the Consumer Credit Act) that basically say the card company is jointly liable with the retailer so you won't lose out should a company go into administration."

Other problems with vouchers and cards are that many of them insist on being redeemed instore, not online. And often stores won't register them; if you misplace them, you lose out. Still, there are alternatives. "A safer way to do this is to give people cash and a note saying what you want them to spend the money on," Lewis suggests. "I know that cash is ugly but there are ways to dress it up. The great thing about cash is that it can't go bust."