Now that Christmas celebrations are over and the dust has settled, millions of people around the world are holding the number one gift for this holiday season. A plastic gift card is once again the top gift that will be purchased for loved ones and friends. A market research company, called Tower Group states gift cards this year will approach $97 billion dollars in sales trumping the 2006 figure of $83 billion in sales.
While these numbers are staggering, there is another number that retailers and gift card providers would prefer you didn’t know about. The industry term for this hush hush secret of the gift card industry is breakage. Breakage is the free money that retailers get when gift cards go unused or underused.
Breakage is expected to hit $7.8 billion this year according to Tower Group, the market research company that studies the gift card industry. The number was surprisingly higher last year at $8 billion in lost or unused value on the cards. Consumers are starting to become more aware of the strict terms and conditions that go along with the gift cards. By becoming more aware, consumers are taking action and either using their gift cards before fees and expirations, selling them at gift card exchange websites or the most common marketplace to sell unwanted items, eBay.
An article over at The Bachelor Guy covers three top places people can turn to when selling their gift cards. If an exchange or selling solution isn’t used the cards should always be used as soon as possible. Many states are trying to ensure that gift cards do not have expiration dates anymore, but this still hasn’t stopped relentless fees from eating away the balance of cards. Fees can be a mere $2.50 a month or can even be a percentage of the balance of the gift card every month. These fees are typically labeled as administration and service fees. Mainstream retailers like Target and Wal-Mart do not use expiration dates or fees on their gift cards. This should help people realize these places are the safest to get cards from if they want to ensure recipients don’t end up with a worthless gift.
An interesting money grab is developing in state budgets to take advantage of unused amounts on gift cards. Gift cards are always anonymous as they are purchased without assigning ownership to the recipient. This throws a wrench in a law called escheatment that would normally allow states to control the unused money in certain circumstances. This isn’t stopping the state of Maine however, as they are pushing to take nearly 60% of the unused amount of gift cards in their state.
A detailed account of new state practices applying unclaimed property laws can be found on CNBC here. It’s estimated that over 30 states are implementing unclaimed property laws to take away as much as 60% of the $7.8 billion dollars this year hanging on retailers balance sheets. Maine has went as far as sending out notification letters to 40 big retailers in the state letting them know they owe the state a big check.
Most big retailers are just simply ignoring the state requests for payment of the elusive breakage jackpot sitting on balance sheets. It’s possible that Maine could sue the stores if they don’t pay up. Currently it looks like the state is taking a wait and see approach to see if stores change their mind on whether they’ll pay up or not.
An obvious problem to states requesting payment for unused money on gift cards is which state is actually owed money from the unused the gift card. If someone purchases a gift card in Florida and gives the gift card to a recipient in California but they use it in Nevada it’s hard to figure out which state is owed any unused funds on the gift card. This could send the decision making to the federal government to give them one more thing to control in our financial lives.
An easy solution to all these woes is cold hard cash. While inflation is inescapable a recipient will always find the same amount they were given originally for their gift. Some still feel that this removes that thoughtful aspect that is obtained by saying, this store seems to fit your personality. A real gift also seems to alleviate any problems with losing a value. The only problem your faced with then is if the gift recipient thinks your a lousy gift chooser. If you just want to go by what your mom always told you however, it’s that thought that counts, not the gift!