A gift card allows recipients to purchase whatever they want from a specific store. This freedom will enable them to purchase what they genuinely require while also providing you with the satisfaction of having given well. But do you know how much consumers lose in unspent gift cards?
Unused gift cards cost consumers $3 billion annually, with Starbucks alone holding $140 million in new gift cards.
Unspent Gift Cards
For the 13th year, the plastic cash substitute has been the most popular holiday item on shoppers’ lists. In 2019, US consumers spent approximately $98 billion on gift cards from brands such as Starbucks, Amazon, and Home Depot, a 90 percent increase from 2005.
However, much money ends up at the bottom of dresser drawers or is forgotten in wallets. Gift cards are typically spent within the first year of purchase. But if you’ve been sitting on a gift card for more than a year, you’re not alone.
Approximately 2% to 4% of gift card money goes unused annually. According to Mercator Advisory Group, this amounts to between $2 billion and $4 billion in the United States.
That’s a lot of money, And so across America, at any given time, there could be unclaimed, unused balances on gift cards that equate into the billions of dollars.
Erin Wood, Chair of the Retail Gift Card Association.
Most gift cards cannot expire within five years of being activated, according to a 2009 federal consumer protection law, and inactivity fees are limited.
Online sites like Cardpool and Raise sell unwanted gift cards to customers who prefer having cash on hand rather than shopping. Depending on the popularity of the card, the resale value can range from less than 70% to more than 90%. However, retailers and some state governments can also claim a portion of that money. (Source: CNBC)
The “No Change” Policy
In the gift card industry, leftover money is referred to as breakage. Companies use a complicated set of guidelines established by the Federal Accounting Standards Board to determine how much breakage they can claim as revenue. Experts say that if a store like Home Depot sells $1,000 worth of gift cards and a customer redeems $900, the store can claim a portion of the remaining money as breakage revenue after a specific time.
In 2019, Starbucks earned more than $140 million in breakage revenue, Nordstrom earned $17 million, and The Cheesecake Factory earned $8 million. However, before a company can claim that money, retailers in some states must return it to the buyer.
Unspent gift card funds are not always returned to the retailer when that threshold is reached. Some of that money could be diverted to state governments.
One would think it would all go to the retailer, but it doesn’t. Portions of that, a large portion of that, will go back to the state that the company is incorporated in.
Sue Brown, director of the prepaid advisory service at the Mercator Advisory Group
(Source: CNBC)
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