What's on your Christmas wish list? If the National Retail Federation is right, gift cards are probably holding a respectable place toward the top of the list. These little pieces of plastic are requested most this time of year, and they have the added perk of allowing people to get what they want instead of money wasted on presents that sucks. This trend may give retailers a hand this year, as they'll be able to keep their inventories down.

If shoppers are slow with the cash, retailers won't have to resort to just slashing prices as they had to last year to move product out the door. When the stuff on the shelves is cheap, gift cards aren't as attractive because there's a deal to be had! This year, if inventories are kept down, gift cards are more likely to move.

Not long ago, I found myself in Sears (NASDAQ: SHLD) buying a video game. While at the point of sale -- which was a nightmare, not because of anything related to the checkout process, but because a jerk cut in front of me and, after the completion of his transaction, proceeded to deluge the poor associate at the register with a bunch of random, techno nerd-talk that said associate clearly couldn't care any less about (but I digress) -- I noticed something pertaining to a Christmas Club card. Sounded interesting, but I didn't pay much attention to the selling material.

Well, last night I was checking out some articles at Brandweek.com, and lo and behold, I came across this one discussing the holiday card. You know how Christmas Clubs work at banks, correct? Same principle applies here. In a simple nutshell, you get the plastic, you store funds on it, and then you can access those funds later on in the season to acquire presents. It's basically like a gift card that you use for budgeting purposes. Not only is Sears involved in this, but so is Kmart. And there's a promotion going on that's mentioned in the article where you can earn a nominal amount of bonus money on it. I don't know the details; I would suggest checking with Sears/Kmart for further information.

We all know that this Christmas is going to be particularly tough on retailers. Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Sears (NASDAQ: SHLD), and Best Buy (NYSE: BBY), as well as hipper competitors Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), will be fighting it out at the mall Mad-Max style the next several weeks.

It's not going to be pretty. With comps and cash flows on the line, these chains will be looking to extract as much discretionary money from consumer wallets as is heavenly possible. But there's a troubling sign with respect to a popular gift option this year.

Gift cards have been soaring in popularity over the years. Not only do they make great presents, but retailers love them because they represent a little insurance policy: if the Christmas quarter isn't as strong as a retailer would like, then redemption of gift cards will theoretically help the bottom line in the next quarter. The card purchases do not get recorded as a sale until they are redeemed. So it's like a squirrel putting food away for the long, cold winter.

Unfortunately, we have some bad news on this front: gift-card sales are expected to be down 6% this season. That's not what retail investors want to hear. It's just another reason for traders to short this sector.

When Toshiba announced over a month ago that it would cease making and marketing HD DVD players, all the retailers that sold those types of players and associated movies in the HD DVD format had pretty much already announced that they'd started scaling down HD DVD inventory. To early adopter consumers who had already purchased expensive HD DVD players, this was the price of admission: not knowing whether that format or the competing Blu-ray format would win.

HD DVD eventually bit the dust, and for consumers who purchased HD DVD equipment at Best Buy, Inc. (NYSE: BBY), the taste was probably quite sour. As in, "what do I do with this $300 player now?" Following competitor Circuit City Stores, Inc. (NYSE: CC), Best Buy is now helping consumers with the frustration. Instead of giving customers a complete credit for the purchase of an HD DVD player like Circuit City is doing (if purchased in the last 90 days), Best Buy is doing something less interesting but with more oomph -- as in, free $50 gift cards.

This will cost Best Buy an estimated $10 million, and by many accounts it's worth every penny. The move has been classified as "brilliant" from just about every corner I can find. The reason? It will bring foot traffic into stores (that's half the battle of retail) while building loyalty to those consumers that HD DVD left in the cold. In other words "Best Buy cares," in a manner of speaking. And, no action is required; the cards will be mailed out proactively to those customers Best Buy has identified as having purchased an HD DVD player. Talk about a major marketing campaign here. And, from my perspective, this is actually better than just giving a full refund to customers who ask (ala, Circuit City). Again, it seems that Best Buy has an innovative angle here that should continue making it the first destination for consumer electronics purchases among the electronics early adopter crowd.

Have your eye on an Ionic Breeze air cleaner, a top-of-the-line massage chair, or an interactive droid? You may be out of luck if you were counting on using your Sharper Image gift card. The retailer of whimsical electronics and housewares recently filed for Chapter 11 bankruptcy protection, rendering these cards essentially useless.

Brian Riley -- senior analyst with research firm TowerGroup -- told MarketWatch that unused Sharper Image gift cards could amount to as much as $25 million. Sales clerks are telling customers the plastic cards are no longer valid for use in stores or online. A company hotline says that shoppers can inquire again in mid-March, as company officials are still trying to determine if the cards will ever be honored.

Additionally, Sharper Image rival Brookstone is offering a 25% discount for any shopper who turns in a (worthless) Sharper Image gift card when making an in-store purchase.

The truly disgruntled gift-card holders can investigate filing a petition in court, but the time and costs required would likely outweigh the gift card's value. Federal law indicates that the holder of the card may have a claim against the bankruptcy estate, but it's likely a worthless endeavor and Riley notes "There's a good chance the dollars will be lost."

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

For years, rising home prices and home equity loans helped people with stagnant incomes to keep up with record food and energy prices. With the collapse of the real estate market, it was beginning to look like there was nothing to take up the slack. But this morning, CNNMoney reports, Wal-Mart Stores Inc. (NYSE: WMT) customers who received gift cards over the holidays are using them for "food and consumables rather than discretionary purchases."

If that's really true, rather than a convenient excuse for a less-than-perfectly managed retail store experience, then it tells us that the U.S. economy is in a heap of trouble. That's because a consumer who uses gift cards to buy food instead of gifts is one that is running low on options. Compared to getting money from a pawn shop, a gift card is a compelling way to pay. But once that gift card runs out -- and it probably can't buy more than a month or two of groceries, then what?

'Tis the season to shop for just the right gift card. While gift cards may be a good deal for consumer recipients, depending upon state laws and company policies, gift cards may have a short-term downside for investors. As gift card giving becomes more popular, the liability problem of what to do about unredeemed gift cards grows as well. In some states, the value of an unused or partially used gift card must be turned over to the state as unclaimed property. The value of the gift card stays on the company's books as a liability. According to a recent article in CFO Magazine, 27% of all gift cards go unused, and perhaps as many as 50% are used only partially.

In states that do not have unclaimed property laws that apply to gift cards, companies must develop their own policies as to when an unused gift card can be moved over to operating income on the balance sheet. This transfer is called "breakage." There is currently no SEC regulation on breakage, so investors need to scan company balance sheets to determine the amount of rbeakage, which can be large. Ruth's Chris Steak House (NASDAQ: RUTH) claimed $2.2 million in breakage as operating income, dwarfed by the $39 million in breakage Best Buy (NYSE: BBY) transferred by analyzing historical patterns of gift card usage. Best Buy determined that after two years, an unused gift card is likely never to be used and can come off the liability side of the equation. Ben Bridge Jeweler, owned by Berkshire Hathaway (NYSE: BRK.A), has little problem with breakage. Most of its customers are only too happy to use their high value gift cards very promptly.

Cyber Monday -- today's marketing gimmick to get people to buy holiday gifts online in the wake of last week's Black Friday -- is expected to generate $4.8 billion worth of e-commerce. According to the New York Times, Doug Hart, a BDO Seidman analyst expects today's Cyber Monday sales to account for 12% of the $39 billion in online revenue this holiday season -- almost as much as the 15% share of holiday sales recorded by bricks and mortar retailers this Black Friday.

Cyber Monday often features online discounts. For example, in 2006 Ice.com, an online jeweler, offered a 20% discount on 15 items on Cyber Monday. RalphLauren.com, a unit of Polo Ralph Lauren Corp. (NYSE: RL) recently had a pre-Thanksgiving 40% off sale which ended November 19th. I received a $200 gift card for my birthday and when I tried to use it after learning from the gift giver of the sale that morning, RalphLauren.com could not verify its value. When I called its customer service line, RalphLauren.com told me that the gift card was worthless.

I notified the gift giver who called RalphLauren.com whose customer service person, Marlon, called me and told me he would take care of the problem that day and get back to me so I could use the card to take advantage of the 40% off sale. Marlon did not call me back, so late that afternoon I called in to customer service -- mentioning Marlon's name (she did not know who Marlon was) -- and was told that I should ask the gift giver to return to wherever he got the card and try again.

A few weeks ago, I blogged about unused gift cards. (One person, 'quannah rooney', replied twice for some reason -- Mom, learn how to use the spell check!). An article by the authors of Freakonomics in last Sunday's New York Times Magazine provides more complete data about the sheer size of the gift card economy. According to the research from TowerGroup, consumers purchased $80 billion worth of gift cards in 2006. Of that, $8 billion will never be redeemed.

This is obviously a very large number. To put it into perspective, it's larger than the annual value of credit card fraud in the United States. And it is certainly larger than the unspent $50 gift card from Eddie Bauer in my desk drawer. (If only winter would make an appearance, I might be able to spend that one this year.)

The article in the Times explores the reasons why people give gift cards in the first place. As economists, the authors wonder why people don't simply give cash. This would be far more rational, and more or less guarantee that the gift isn't wasted. But as a gift, cold hard cash feels, well, sort of cold. Gifts are far more complex than mere exchanges of economic value. The most important part of a gift is not economic -- it's emotional. Gift givers are trying to give something more than money. They are trying to transmit emotional value that exceeds the economic value of any pile of money, no matter the size. The question is whether gift cards accomplish this task.

Despite my failure to use the full value all of the gift cards I have received over the years -- and thereby provide large corporations with free money that I need far more than they do -- I tend to think that gift cards work pretty well as gifts. They do require some thought, since the store where the card can be redeemed must match the preferences of the receiver. (This may explain why a Talbot's gift card likely will remain entombed in my desk drawer for the foreseeable future.) But the authors of the Times piece disagree. They argue that gift cards are too easy, and as a result their value falls -- perhaps even below their face value. Thus the unused $8 billion. I'm not entirely convinced, but it is an interesting theory. Either way, I hereby vow to spend all of my unused gift cards this year. (Anybody know if Talbot's sells hiking boots?)

Yesterday, Brian White blogged about unused gift cards. Millions of people receive gift cards during the holidays, and many of these cards end up sitting in purses, pockets and desk drawers, unspent. This represents an enormous profit for retailers, who keep the payments for the cards without having to part with any merchandise. What an easy way to make money!

According to a recent AP report, Best Buy (NYSE:BBY) claimed $43 million in profit from gift cards sold but not used in two years or more. Limited Brands (NYSE:LTD), the owner of Victoria's Secret, claimed $30 million.

Gift cards are very popular. The National Retail Federation estimates that retailers will sell over $25 billion in cards this year. Somewhere between 5 and 25 percent of the cards will not be used. Interestingly, rates of use vary according to the kind of store the gift card is from. Cards for basics, such as food, get used quickly and in full. Less essential needs such as entertainment have higher rates of disuse.

I hate the idea of just giving money to retailers -- although I know there are a few gift cards in my desk drawer. So let's all make a vow to use those gift cards that come in this year. Make the stores earn their money!

I wonder how much revenue gets booked at chain stores during the holiday season when gift cards are purchased but then never redeemed? Well, count retailers to try and make the period for using gift cards shorter and shorter so that they can book more gains on those unused cards.

Not so fast, really. Most retailers I have seen do not put an expiration on their gift cards at all. But recently, it was rumored that retailer Best Buy Co., Inc. (NYSE:BBY) had stuck a two-year expiration period on gift cards. I can't say if this rumor is true or not.

Now, I am not sure who would wait for two years to use a gift card, but the retailer was posting revenue on its sales to which merchandise was never being exchanged for via gift cards. Pretty nice built-in cash machine, eh?

To those who receive Best Buy or other retail gift cards this year for the holidays, rest assured that there will more than likely be no expiration date on them. Use them in a decade for that new $50 plasma TV, perhaps.

As I'm a Starbucks Corporation (NASDAQ:SBUX) shareholder (a very very minor one), I get an annual "bonus" -- a special-edition Starbucks gift card with a little less than $4.00 in value, good for one grande almond latte (or thereabouts). The gift cards are pretty, and seem special, so when I have a little cash in my bank account and get the urge I'll refill it -- then, when I'm totally out of cash and dying for a sticky-sweet cup of milky caffeine, presto! Starbucks.

My friend takes it to a whole new level. She and her husband are both self-employed, and they've set a strict budget that ensures they'll live within their monthly invoices. So she buys a Starbucks card every week or so, on Monday when her spending budget for the week begins anew. That way, if she spends all her cash by Thursday? She can still hang out with me and our boys at Starbucks on Friday afternoon.

It's a hedge against brokeness.

A report in the AP indicates that 12% of all sales at Starbucks are through these refillable gift cards -- that's one in eight lattes. There are many theories about why the cards are so popular, but I'd just like to stake my claim on the concept that buying gift cards ensures that you'll still be able to buy coffee and 'Top Pot' chocolate doughnuts when you've spent all your money!

Are gift cards going to be popular this retail holiday season? You bet -- and assume people are very hard to shop for, the "holiday gift card" will continue to be popular until the end of December this year. In fact, Wal-Mart Stores, Inc. (NYSE:WMT) is reportedly adding checkout lines in stores to be used exclusively by gift card redeemers.

Wal-Mart Marketing head John Fleming, formerly of Target Corp., said "we expect more use of gift cards, and it's a key part of our marketing message".

The push for more usage of gift cards is getting to be part of the largest fever pitch I've seen in recent years -- if ever. With the retail sales tracking universe always settled/not settled on including the sales of gift cards in holiday sales, whether they are ever redeemed or not, sales are expected to be better than ever this season.

In fact, gift card sales are expected to grow more than six times faster than total holiday sales to a record $24.8 billion this holiday season, the National Retail Federation says. Now that's growth. And retailers just love it when the holiday shopping season extends well into January -- or further.