Gift Card Breakage Profitable for Retailers

Gift Card Breakage Profitable for Retailers

Posted by admin on Feb 02, 2010

According to consulting firm, the TowerGroup, nearly $5 billion of money on gift cards will go unspent.  This is known as breakage.

An example of breakage is the $10 left unspent on a card if you spend $40 out of the $50 on on the card.  Breakage also occurs if a card is lost or misplaced, frequently resulting the entire amount funded on the card being abandoned.

Retailers love breakage because unspent money is pure profit.  For instance, electronic retailer BestBuy reported that $38 million of its gift cards were not redeemed last year.

Gift cards continue to be the gift of choice for many.  Over $97 billion was spent on cards.  The average gift card is funded for $140.  Over 70% of shoppers using gift cards spend more than the amount of the card.  And almost 7% of cards went unspent last year.

The Federal Reserve has proposed new guidelines that would prohibit fees for cards that have been inactive for less than a year and outlaw expiration card value within 5 years.  But, that doesn’t do much to impact the breakage issue.

If you get an unwanted gift card for a store you don’t patronize this year, there are several websites that allow you to swap out the card for a small fee.  You may also want to donate the unwanted card to a charity.

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