The Hidden Margins Created By Gift Cards

gift-cardGift cards are arguably the most popular gift to give, especially during the holidays. Case in point: a 2013 study by Accenture found that 56 percent of gift givers planned to give gift cards, making it the most commonly given gift.

Furthermore, 33 percent of gift givers buy more than six gift cards each holiday season, and the average amount spent on a gift card in in the range from $25 to $50. Clearly, consumers purchase a bevy of gift cards, but do they know the reason that retailers push them so hard?

This article will discuss some of the reasons that retailers are so eager to sell gift cards, which includes their secret margins.

They Go Unused

A big way in which retailers end up making money from gift cards is the fact that they often simply go unused. This includes both gift cards never used and those partially used.

A stunning finding by CardHub, a leader in the consumer finance space, was the estimation that from 2008 to 2014, a total of $44 billion in unredeemed gift card value was outstanding for American consumers. This finding would suggest that the average American has over $100 in gift cards that they haven’t used!

Even if the gift cards are eventually intended to be used, if they are forgotten about, they can expire. New federal legislation dictates that gift cards cannot expire within five years of issue, however. In addition, a number of states– such as California– do not allow expiration of gift cards period.

Nevertheless, gift cards are often a good way to get money now, for goods or services that may never manifest.

More Might Be Spent

A classic rationale for retailers to offer gift cards is the fact that the consumer may very well spend more than the value of the card once they’re already in your store.

For example, someone purchases an item for $25, but their gift card only has $15 on it. You have essentially solicited a $10 sale without hardly any effort. It is estimated that 70 percent of customers will spend more than the value of the card.

Helps Build New Customers

Quite simply, it has been found that 72 percent of consumers who patronize a business for the first time because they received a gift card to that business end up returning to that retailer.

In other words, you are provided exposure, which is good for any business.

 

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