Gift card spending may be a little less frivolous and a lot more practical this holiday season.

Based on its 2008 Holiday Gift Card survey, Archstone Consulting expects gift card sales will fall 5 percent to $25 billion this holiday. The firm also expects gift card spending will shift toward household necessities like groceries or gas, or small indulgences, like dining at restaurants. 

Gift cards have exploded in popularity in the recent few years, and retailers typically count on customers coming back into their stores quickly after the holiday season to use their gift cards — and spend more than the value of the gift card.

But as consumers began to feel pressured by high gasoline and food costs last year, that did not quite work out as hoped.

Last year, Wal-Mart’s sales at existing stores rose a less-than-expected 0.5 percent in January. The discounter partially blamed the sales shortfall on consumers’ resistance to using their holiday gift cards to splurge, saying customers were holding on to the cards longer and often using them to buy food rather than discretionary items. 

A year later, consumers are still pressured by high gasoline and grocery prices, as well as an ongoing slowdown in the housing market, a weakening jobs picture and a turbulent Wall Street.

Archstone expects prepaid bank cards, like those issued by Visa or American Express, to be the more desired gift cards this year.

“Consumers are gravitating toward cards that allow them the flexibility to purchase household needs at the gas station, supermarket, or pharmacy,” said Dave Sievers, a principal at Archstone.

It also expects the “restaurant/fast food” category to sell more cards than any other category this holiday because eating out is a “simple luxury” for families.  Archstone expects gift cards will provide some much needed holiday support for eat-in restaurant chains, such as McDonald’s and Outback Steak House.

(Photo: Reuters)