Being involved in the retail business, and more importantly in the technical side of the retail business, I’ve often been amazed at the breakthrough of gift cards and the upsurge in their usage. I’ve seen the retailer side of the story first hand. Most of the retailers that my company deals with have implemented them in one way or another, and if they haven’t, they are going to very soon. Why do the retailers like them so much? I’ll give you the top reasons they get implemented:
- They drive brand loyalty - after all, you can only use the money at that store
- They drive revenue - you’re 80% likely to spend in excess of the gift card amount
- They can use them to return funds to you, instead of giving you cash
- It’s possible to sell them in other locations. Companies like BlackHawk and InComm are making a fortune doing this.
- They are a liability, but an interest free liability. May as well use it to generate other income, right?
So it’s a given for retailers. But why have consumers taken to them in such huge numbers? Did you know that by buying a gift card from a retailer you are actually extending them an unsecured loan for the $50 you are buying? Recent problems with The Sharper Image moving into bankruptcy are what have prompted me to write this blog entry. The Shaper Image suspended the redemption of their gift cards, so if you had one, you’re out of luck. They have now reinstated gift card redemption, but with new rules. You must use the entire card in one transaction and the transaction amount must be at least double the value of the gift card. Well, what do you expect from loaning money to a company without a formal payment plan?
So what is it about gift cards? What prompts someone to buy a $20 gift card to Chili’s for a gift instead of just giving you a $20 bill? Buying a gift card to a particular retailer for a person often involves some thought, and it’s supposed to be the thought that counts, right? Cold hard cash is so impersonal.
Working on the design of point-of-sale systems allows me to “see under the dress” of the entire gift card world. It is certainly a complicated mess. As an example, at the beginning of this year, the State of California had a law go into effect that allows anyone with a gift card valued at $10 or less to be able to go into the retailer and have the amount refunded to them in cash, without having to purchase anything. Score one for the consumer! But it only applies to California. Oregon does something similar, but the limit is $5 there. From a software development and product management standpoint, this has caused me much heartache. Retailers that span across states want the very minimum supported. So a $10 limit in California, a $5 limit in Oregon, and $0 anywhere else. I’ve spent quite a few hours since the beginning of the year determining design and process workflows to deal with the use case. From my software implementation standpoint, I curse the State of California.
But from a consumer standpoint, I have to applaud them. At least they are trying to put some control over what is a very unregulated process. It is time that the federal government stepped in and put down some simple rules for gift cards to help protect the consumer a little bit. But even if they do, the case where a company goes into bankruptcy can’t be addressed. You’ll still be out of luck.
Gift cards aren’t going to go away. They’re only going to continue to grow. Consumers just need to make a few extra thoughts before purchasing them. And my best advice is to use them quickly.
We Care a Lot
