Retailers Benefit From Sales Of Holiday Gift Cards

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‘Tis the season for holiday gift buying and gift cards are popular with shoppers for many reasons. But,why would one store sell products that send shoppers to another store? WOSU’S Debbie Holmes explains the economics of the gift card.

As shoppers go through the checkout lines this holiday season many of them are buying gift cards. It’s easy to select the cards from more than 200 stores at many local grocery stores. You can find them at the front of the store in what are called gift card malls–racks filled from top to bottom with card choices. Shopper Sheila Ebbrecht spends about 200 dollars each year to complete her gift list.

“Barnes and Nobles, Starbucks for teachers and Best Buy, stuff like that and I-tunes for my nieces and nephews.” Says Ebbrecht.

Sheila and shoppers like her like the convenience. The card purchases also build store loyalty points which can result in saving on things like gas. But the stores benefit as well.

Vice president of Prepaid Services at First Data Corporation, Jim Contardi says participating stores get a cut- ..albeit a small one.

“The way that the economics of a gift card mall work, the retailer that sells the card is getting a portion of the face value of that card for having made that sale.” Contardi says.

Grocery stores like Kroger will not say how large a cut they get. Spokesperson Amy McCormick.

“There is a small profit margin involved in the cards, but basically bottom line for Kroger it is a convenience for our consumers.”

Kroger actually contracts with another company-Blackhawk Network to sell the gift cards. Blackhawk has a deal with Kroger to set up its gift card malls in the chain’s stores. Spokesperson for Blackhawk, Terri LLach explains.

“The consumer spends $100 to buy that card and they have $100 of value on that card and then Home Depot, the retailer and Blackhawk have a financial arrangement where we share a split of the commission.” Llack says.

LLack will not reveal the percentage that each partner gets based on the card’s face value. But, she says sales are up by at least 10 percent from last year. Shoppers nationwide are expected to spend about 87 billion dollars on gift cards this year.

But the cards won’t buy that amount of merchandise. The research firm The Tower Group estimates about $5,000,000,000 in gift card value will not be used. Tower Group’s Brian Riley says shoppers need to use the money before they forget.

“Most of them get used in one form or another and what really builds the bulk of unused value are the $3 and $4 that often get left on the cards themselves. So somebody might get a $50 card and use it for $47 and throw it in a kitchen junk drawer.” Says Riley.

There’s also the possibility cards could become worthless if the store goes out of business.

So if you receive a gift card be sure to read the fine print on the back. Expiration dates and other restrictions can vary. In Ohio, gift cards cannot expire within two years. Visa, American Express, Master Card and other bank cards charge fees upfront.

A federal law that takes effect next summer will limit inactivity fees and give consumers up to 5 years to use gift cards.

Debbie Holmes WOSU news.