In the United States, gift cards accounted for $ 19 billion in sales during the 2005 Christmas season and $ 25 billion during the same season the following year. Analysts agreed that the tremendous popularity of gift cards is due to their convenience (in terms of purchase and shipping) and apparent respectability. Gift cards somehow managed to convey a certain amount of consideration from the donor, unlike a check or cash envelope.
However, gift cards have certain drawbacks for the consumer. In 2006, many cards still had a variety of restrictions, including expiration dates, inactivity charges (for example, the value of a card could decrease by $ 2 if it was not used for six months) and the inability to combine the Balance on the card with another form of payment (for example, you have a $ 30 gift card and want to use it as a partial payment for a $ 50 towel set, in some cases the card is declined for “insufficient funds”, so you can only use it for a purchase of $ 30 or less).
Advantages and disadvantages for the retailer
As popular as gift cards are with consumers, retailers love the cards even more. Retailers benefit from gift card sales in a number of ways. First, they receive money up front for the purchase; If the gift card is lost, destroyed, or for any reason not redeemed, the retailer has indeed received “free money” for the original purchase of the card. Second, the gift card attracts new customers (the recipients of the card) to your stores. Third, the person redeeming the gift card often spends more than the amount on the card. Lastly, it often happens that when the gift card is redeemed, there is a small unspent balance left on the card. If this balance is not spent at a later date, the retailer makes an additional profit. In 2006, JC Williams Group, a global retail consulting firm, estimated that about 10 percent of the prepaid value of gift cards is never spent.
The main downside for retailers is that gift cards are relatively expensive to manufacture. Depending on the volume of cards a retailer orders, the cards can cost up to $ 3 each. The retailer must also pay fees to the outside company that manages the electronic network used to process the cards.