Note: This blog was originally intended to be publishedin the comments section at Time Magazine’s blog here: Time.com’s comments sectionhad not posted it as of this writing. The blog argues that SenatorBlumenthal’s bill, which would further restrict gift card andpromotional card expiration dates and fees, needs to be passed.Information on Blumenthal’s bill can be found here.
Senator Blumenthal and Adam Cohen makeseveral incorrect assumptions about gift cards which could lead toa law that will have the presumable unintended result of hurtingthe gift card industry.
The biggest mistake both make is assuming that retailers do notwant gift cards to be redeemed. This is wrong for threereasons.
First, retailers like happy customers. When a gift card goesunredeemed and a gift card holder feels jilted the retailer hasannoyed not one, but two potential customers: the givers, whotrusted the retailer with the money for their mom or theirchildren, and the recipient, who can’t spend the card. They want toavoid this, which is connected with point two.
Second, retailers don’t get to keep all the money from unredeemedgift cards. Well over half the states in the United States havelaws requiring retailers to turn over unused gift cards to them.This means that much of the money that is recognized as breakagegoes to the states. And what happens if someone brings in one ofthose old cards to a store? Well, go back to point one, retailersdon’t like unhappy customers, so they honor them. But they do notalways reclaim the supposedly lost funds from the states.
Third, retailers are in business to have people come into theirstores and buy things. When shoppers bring in gift cards, theytypically feel as though they have free money, and they want tosplurge. Most gift card users spend more than the face value of thecard. What this means is that any breakage kept from unredeemedgift cards becomes a consolation prize from lost sales.
Every gift card manager that I have spoken with in the course of mywork with Mercator Advisory Group says they want to increaseredemption, not breakage.
Also, note that promotional cards are not paid for by the shopper.The issuer of the card, the store pays for those cards, and realdollars go to fund those cards. They are a marketing tool like arebate. No one would argue that someone who doesn’t send in for arebate should have forever to claim the funds, and the same shouldhold true with promotional cards. Saying that promotional cardsshould never expire is like saying that a sale should never end.Retailers will be forced to stop issuing these cards because theywill be too expensive and won’t help promote a specific sale oritem if they never expire.
One final note, the National Retail Federation did not say thatshoppers would spend $156 per card. Its survey found “that 81.1 percentof shoppers will purchase at least one gift card and will spend anaverage of $156.86 on gift cards, the highest amount in thesurvey’s 10-year history.”
Given consumer desire for and spending on gift cards, it makes youwonder whether Sen. Blumenthal and Mr. Cohen think that Americanshoppers are just a bunch of suckers or if the problem is perhapsoverstated.