It was the summer of 2001. I was working in a well respected high street chain in Covent Garden London. The company really seemed to care about the people who made their clothes in India and other countries, and their marketing messages were built around these relationships. It was this ‘Fair Trade’ idealism that drew me to working for this fashion brand to begin with. For all their ethics and morals there were two glaringly obvious things about the way we worked that made me uneasy. Now don’t get me wrong, neither of these things were unique to the company I worked for, they were both absolutely standard practice across the retail industry in the 2000’s.
The first was plastic. The sheer volume of waste that each of their stores threw into landfill was unsettling. The second was their complete disregard for their customer’s financial situation when it came to pushing their store credit cards, HARD! Each and every staff member was targeted on how many store cards they opened, prizes were given out to those that performed well, and ‘talks’ were had with those who didn’t meet the numbers.
I’m glad to say that store credit cards have become a thing of the past, an ugly stain of greed, a hangover from the 80’s perhaps. That doesn’t mean to say that retailers can hold their halo’d heads high. Each and every retailer can be a better version of themselves, some vastly more-so than others. Branded store credit may have disappeared from the high street, but something very similar, yet not so glaringly obviously greedy has taken their place. An easy buck for the retailer, a way of taking a little more than may otherwise have been spent in their store…. the humble Gift Card.
Packaged as the perfect way to buy a gift without getting it wrong, the store gift card is a clever way to ensure the money you were going to spend on your gift recipient goes to that retailer, or one of the affiliated companies on the card. On it's own that’s not absolutely terrible. If you wanted to buy a sports gift for a kid, but didn’t know what to buy, then the gift card is a fun & thoughtful option. But here are a couple of facts you should know about buying Gift Vouchers:
When you buy a GV, that money HAS to spent at that store or stores.
It’s an obvious one, but this is a problem that could be totally avoided by giving cash. Perhaps the kid you’re buying for is hoping to save up for a new bike. If all their friends give them a GV, they then need to find something to buy in all of those seperate shops. Perhaps even having to spend some of their own ‘bike-savings’ money to make sure there isn’t credit left on the GV after they’ve spent up. Giving cash would make it easier for that kid to save for their bike, or whatever other item they had their hearts on.
Left over money.
What happens to all the left over cash on all those gift vouchers? According to the website thehustle.co, 10%-19% of gift card balances (in the US) remain unredeemed. That may not seem like such a significant amount on a $30 gift card, but if that figure is also true for Australia, when you consider that $2 billion - $2.5 billion is spent on gift cards each year in Australia alone, that’s a LOT of unspent cash. Somewhere between $200 million & $475 million aud. That blows my mind!
6% of gift cards are never even used.
For 6% of the cards bought, the gift recipient will never receive your gift. It’s that simple. Gift cards get filed away, to be spent another day. More than 70% of gift cards get spent within 6 months. But after 1 year, almost 80% of all gift cards still remain unspent. Even with the longer expiry dates of 3 years, 6% of gift cards go unspent. That just doesn’t happen with cash!
There are a few reasons customers don’t spend gift card money:
- We forget we have the gift card.
- We lose the gift card.
- We don’t like the retailer/restaurant that issued the gift card.
- We can’t access the retailer/restaurant due to location or other factors.
- We buy something of lesser value and leave the leftover amount on the card.
- The gift card expires and/or comes with restrictions.
So what happens to the unspent gift card money?
When Granny buys a gift card for Amazon, she exchanges $25 of her hard earned cash for $25 of in-store credit to be spent at a later date.
Big companies use ‘accrual accounting’ which means that those monies are not counted when the card is purchased, but when the card is redeemed or spent. Companies have to plan for the possibility that these cards will be spent at some point, but until then, those funds are marked as ‘liabilities’.
Recent filings of some of our largest global corporations unused gift card liabilities:
Amazon: $2.8 billion US - 2018
Walmart: $1.9 Billion US - 2019
Starbucks: $1.6 billion US - 2019
Target: $725 million - 2018
After a certain amount of time, the law permits companies to turn a percentage of these liabilities into ‘breakage income’. This is the amount of money that the companies estimate will never be spent, and are essentially getting for free, at a $100% profit margin.
In 2017 Starbucks alone reported $105 million USD from breakage income (unspent gift cards).
If an average of 4% of a companies gift cards are never spent, that means they get to pocket $1 out of every $25 voucher purchased, at no cost to them.
Despite this, retailers claim to make more money when a gift voucher is spent in-store. This is why:
- 75% of people spend MORE than the value of their gift card
- Shoppers using gift cards are much more likely to pay full price than those using cash or credit cards.
- 34% of shoppers say gift cards lead them to shopping in a store they would never usually frequent.
- Gift cards often aren’t spent in 1 trip, bringing shoppers back in store on another date.
Now I fully understand why every supermarket & big retailer has so much space dedicated to the colourful little gift cards of joy! Packaged as ‘The Ultimate Gift!’ with specific vouchers for Teens, Students, etc etc. Gift Cards are a lucrative product!
So what's the answer?
Whilst many economists hail cash as the most economical gift, some argue cash-giving as impersonal or crass. I'd argue that gift card giving is no different, it's just packaged differently by the retailers. And whilst the holiday season and celebrations are all about being a little frivolous, I honestly believe than matching this holiday-energy with a little frugality is the way to go in our current global economical situation.
I'd love to know your thoughts!
Look out for our How to Make Cash-Giving Fun….. Blog Post coming out 12th June 2023.
Image by kstudio on Freepik (edited)
