The economics of gift cards

[madlori]

Lately I've noticed that more and more supermarkets are really pushing the gift-card thing, and I don't men GCs as gifts. I mean buying gift cards for stores you normally shop at to use yourself. The incentive to do this is fuel points. My supermarket, for example, gives you double points on gift cards you buy, and they have tons available. I buy

Comments

[tipgardner]

And a fourth, the bank or payments company that handles the processing and transfer of the money.

[mmichelle]

I think the benefit for Target is probs in people who never redeem their gift cards. There are CRAZY stats on the amount of money in unredeemed gift cards stores have made in just the past five or six years alone - it is literally billions of dollars. So I would assume that is where Target is making its money on this.

[enna]

What she said!

When I worked for a dept. store they always told us to sell sell sell the gift cards because they counted on people not using them or not completely using them and then they have a 5 year expiration date or something so if you find it much later, too bad, and then it's free money for the company.

Of course, it's different when you actually end up using the gift cards. I assume they think it will bring people in that might not usually come in because "well, I will get that at Target instead of at such-and-such, because I have a gift card there".

[moropus]

I also think people don't use ALL the gift card.So if its $25, they might spend $19 and forget about the rest.

[eiramanit]

Since a lot of people also tend to purchase using a credit card, some of that discount Target gives to the grocery store is money they would have been giving to the credit card company, so not lost money. Retailers in the end roll those fees into the pricing of their products.

[rouxb]

It is all win for the reasons mentioned:
Seller gets kickback
High percentage of gift cards go unredeemed
Gift cards are almost always redeemed for less than or more than their face value
They bring people into the store.