So I went hunting for the secrets behind how gift cards work. Also, I just wanted to understand how outsourcing our shopping duties to gift recipients is now not only accepted — it’s often preferred.
A gift that costs recipients
Here’s one surprise: Retailers really want us to use the gift cards they got paid for. They don’t want us to forget them in a kitchen drawer for a few years.
At least that’s what I was told by Scott Meyerhoff, the chief operating officer for InComm, an Atlanta-based company that is a big service provider in the gift card industry.
“If you don’t spend the money, they are actually disappointed. Because when you do (use the cards) you are going to spend more than you expect,” Meyerhoff said.
When people use gift cards, they also dip into their own pockets by an average of $38 beyond what’s on the card, according to First Data, an Atlanta-based payments processing company.
Which means the gift of gift cards actually is costing recipients.
Yeti cups and Hatchimals may come and go, but gift cards remain a blockbuster holiday gift item. (Richard B. Levine/Levine Roberts/Newscom/Zuma Press/TNS)
Still, some money put into gift cards won’t ever be spent. Home Depot recognized $34 million last year alone in gift card balances it believes are likely to go forever unused.
There’s another payoff for retailers: Nearly half of consumers go to a store they wouldn’t have otherwise because of gift cards, according to First Data.
All that might help explain why gift cards are offered virtually everywhere and for virtually everything. Goodwill of North Georgia offers them. Lanier Islands has them. So do Uber, maid services and, of course, all manner of stores and restaurants.
“It’s a big piece of our business,” Kristi Martin told me. She’s the president of Ted’s Montana Grill, which has 46 restaurants in 16 states.
Nearly two thirds of Ted’s annual gift card sales are made in the last three months of the year, Martin said. The hope, she said, is that they will be redeemed early in the new year.
Not risk free
Gift cards that are swipe-able didn’t use to be so prevalent. But shopping habits shifted, and businesses looked for fresh options. InComm and its founder, Brooks Smith, focused on technology that allowed gift cards to remain valueless until they were activated when purchased at registers. That eliminated a major headache for retailers. (InComm, which works with companies from Wal-Mart to CVS, Best Buy and Dollar General, also takes credit for selling Apple on the idea of selling gift cards for iTunes.)
This year, some of InComm’s biggest growth is coming in digital versions of gift cards that rely on a code rather than a card. For now, though, the bulk of its gift cards are still the plastic variety. And no time is busier for activations than December, particularly the days closest to Christmas.
These aren’t gifts you have to put a lot of thought into. They are easy and fast. They seem like risk-free giving and receiving. And often they come with discounts from hungry merchants.
But they also act like no-interest loans to retailers, who keep the money until we get around to spending it.
(Actually, the company with its name on the gift card doesn’t get all the money. It has to give up a cut of the funds, and the amount varies.
Meyerhoff gave me an example: A $100 gas gift card sold at a grocery store might funnel $96 to the gasoline retailer. About $1 would go to InComm and $3 would stay with the grocer. The grocer’s cut could be even higher for other cards, such as those for tech companies or game systems, Meyerhoff said.)
Because some retailers are facing serious financial struggles, it's not wise to linger long before using cards for those stores. Otherwise, it might not be fully redeemable if the retailer goes out of business, which is one reason consumer advocate Clark Howard isn't a fan of buying gift cards.
Confession: I’ve given some mass-market gift cards. It wasn’t very satisfying for me as the giver.
We hand some family members last-minute gift cards, and they hand us their version. Which begs the question: Couldn’t we skip the gift cards, call things Even Steven and just enjoy hanging out together?
The problem is, we’d still miss the joy of giving.
Which leads me to my new goal: If I ever give gift cards again, I intend to only give those that require extra thought and connection. Because otherwise, what’s the point?
Thanks for helping me work through this.
Best selling gift cards this year compared to five years ago*
In 2017 …
Toys “R” Us
And in 2012 …
*According to Atlanta-based InComm
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