Gift Cards Are Too Expensive

Gift cards account for nearly $150 billion in sales annually.  74% of people have received such a gift in  the past year.

Gift cards are a bonanza for vendors and are a depreciated value for the people who receive them. Here’s why.

Retailers spend vast amounts on advertising to lure people into their place of business.  No need if the consumer has a gift card to spend.  They can go nowhere else.  Significant saving to the retailer.

Not all gift cards are redeemed for goods or services.  Certainly not all redeem for full value.  Big win for the business that took the money and had to deliver nothing. 

Adults have an average of $100 worth of unused cards.  That is a lot of free capital for someone.  Managing free cash flow is very lucrative.  It is a key factor at Berkshire Hathaway.

The resale value of gift cards tends to be less than 100 cents on the dollar.  For diverse businesses like Amazon they tend to be close.  Similarly for Starbucks, but most retailers sell at less the 90 cents with some as low as 50 cents.  You can see them on Ebay, Kijiji and Craigslist. 

If a thing is worth what it will fetch, then gift cards are not worth their price.

What would happen if retailers sold $50 gift cards for $45.  That might promote more business than selling them for $50. Attracting a new customer for 10% off the first sale is an attractive deal.

Failing the obvious, buying gift cards for what they are really worth to the recipient, people can consider giving an alternative.

Cash.  It is the universal gift card.  Maybe someone could make a business out of building gift envelopes for the presentation effect.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com 

This entry was posted in Decision Making, Insight to Business and tagged , , . Bookmark the permalink.

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