I write a weblog for two financial sites, three times a week… I thought that WOB listeners might be interested in this latest entry … for the full text see the from page of http://www.stockdr.com/
Gift Card Reform…
It seems as though there is little in life that could be simpler than a gift card.
A gift card seems like the perfect gift for a friend or acquaintance who you want to thank for a favor. I have at least two brothers who typically request gift cards from certain stores (Home Depot and Best Buy) in lieu of a specific item for birthday or other holiday gifts.
But in a world of plastic payments, very little is all it seems.
. If you give a $50 gift card, I think that you could reasonably assume that you have given someone $50 to spend at either a specific store or in the case of Visa or Amex gift cards – any store. As a small business owner your hope is that the $50 gift certificate turns into $75 in sales. For large scale retailers, like McDonald’s, a portion of your gift certificate sales are expected to never be redeemed and they get added into the P & L as income after they expire. Your gift of a gift card is rarely what it appears to be
First it tends to have an initial cost. It seems strange that a gift card would have a fee, but when you buy them at another retailer, I guess it makes sense. At my local Publix there is a stand with cards from a large number of stores, Publix sells these cards as if they were pickles or canned green beans, so I guess they should make a few pennies. The typical cost is about 10%.
But it gets worse. These cards typically have fees for the user that prevent them from getting the full value paid for them. In spite of the fact that there is no borrowed money and no need to process anything if inactive (save for an inactivity report) these cards will frequently have fees that start reducing the face value within just a few months.
And then there is the iron clad expiration dates. At my small business, I put expiration dates on my gift certificates to encourage their use. I’d rather not have a $50 or $100 credit sitting out in air for a long time. But I have never enforced an expiration date. I have that flexibility with a gift certificate that we print up at the tea shoppe. But these gift cards that are printed and administered by banks have no local override provision. Even the most compassionate local business owner can’t redeem money from a Visa gift card that has expired any more than he could from an old credit card account.
And what happens when a retailer goes under? So do your gift cards. For the sake of bankruptcy laws, gift certificate and gift card holders are considered creditors and are typically left without any rights if a retailer goes with either Chapter 7 or 11 protections.
For more info and solutions … see www.stockdr.com
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