Plastic Jungle

As we mentioned in a previous post, the Federal Reserve released new regulations regarding gift cards earlier this week.  In particular, the regulations have received a bit of press as they are more consumer-friendly.  For example, gift card issuers are now limited in their ability to charge non-use fees and the money on the card cannot be recognized as breakage revenue to an issuer until five years have passed.  Breakage, which is the ability for a retailer to recognize revenue years from now from a card not spent, has been challenged from a few directions as consumer-rights advocates and state attorneys general go after the practice.

What’s been less written about is how these changes are good for retailers, too.  We’ve spent a bit of the past year working with retailers on their gift card programs and, contrary to some views, retailers are realizing even more the value of getting dormant gift cards moving again.  The view that retailers cheer for breakage is becoming a dated one.  Retailers more than ever are working to get these cards spent as consumers become more loyal through gift cards and spend more — an average of 72% more according to a Consumer Insights Study by First Data — than the value on the card.  Best Buy’s CEO stated in a recent earnings call that their consumers spend more than 300% than the value of the card.  That “overspend” makes sense when you consider what Best Buy sells (and I have a few flat screens I’ve bought from them to prove it…).

Certainly right now retailers are looking at all marketing levers to goose their sales and gift cards are a great vehicle.  With billions of dollars currently dormant in consumers’ homes in the form of unspent gift cards, anything that taps into this idle gift card economy is a blessing to retailer sales.

So while the sentiment has been that retailers and consumers are not on the same side when it comes to breakage with gift cards, we are seeing the opposite.  Which is why the action being taken by the Fed is both good for the goose and the gander.