In the United States, gift cards accounted for $19 billion in sales during the 2005 holiday season and $25 billion during the same season the following year. Analysts agreed that the enormous popularity of gift cards was due to their convenience (both in terms of purchase and mailing) and their apparent respectability. Gift cards somehow managed to convey a certain amount of consideration on the part of the giver, unlike a check or cash envelope.
Still, however, gift cards had certain drawbacks for the consumer. In 2006, many cards still had a variety of restrictions, including expiration dates, inactivity fees (for example, a card’s value could decrease by $2 if it’s not used for six months), and the inability to combine credit. card balance. with another form of payment (say, for example, you have a $30 gift card and want to use it as partial payment for a $50 set of towels; 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 them even more. Retailers benefit from the sale of gift cards in several ways. First, they receive money in advance for the purchase; If the gift card is lost, destroyed, or for any reason not redeemed, the retailer has effectively 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 earns an additional profit. In 2006, the 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 disadvantage for retailers is that gift cards are relatively expensive to manufacture. Depending on the volume of cards a retailer orders, cards can cost up to $3 each. The retailer must also pay fees to the outside company that runs the electronic network used to process the cards.