November 13th, 2007 | 3 MIN READ

$8 Billion in Unredeemed Gift Cards a Win-Win for Retailers?

Written by author_profile_images Linda Bustos

Linda is an ecommerce industry analyst and consultant specializing in conversion optimization and digital transformation.

Amazon Gift CertificateGift cards are the perfect solution to many shopping problems -- your giftee is tough to shop for, lives miles away or it's 11pm Christmas Eve and the only store still open is the Safeway (with a nice variety of gift cards hanging in the checkout aisle).

Whatever the reason, $26.3 Billion worth of gift cards will be given this holiday. Between 56% and 69% of shoppers will give at least one (NRF Gift Card Survey, Consumer Reports and Deloitte), with an average of 5 gift cards per consumer and 16% giving 10 or more (Deloitte).

Not only do people love giving gift cards, they love getting them. Gift cards top the wish lists of consumers polled by BIGResearch and the National Retail Foundation with 53.8% of adults 18 and older indicating they would like to receive them for Christmas this year (62% of women and 45% of men).

But 27% won't end up using their gift cards according to the NRF survey (up from 19% last year). The most common reasons reported by respondents were "not enough time to shop" or "couldn't find anything." Other reasons include forgetting about them, losing them or not using them in time. This equates to around $8 Billion in unredeemed cards based on last years' sales of $24.8 Billion.

BestBuy reports $43 Million worth of gift cards have yet to be redeemed from last year.

Consumer Reports began running a full page ad in the New York Times yesterday in an effort to educate the public about the downsides of gift certificates:

Consumer Reports Newspaper Ad

Consumer Reports also published articles on the pitfalls of gift cards and annoyances like maintenance fees, expiry dates and lengthy registration processes -- although these problems are more common for cards issued by banks than by retailers.

The situation has been painted as a "win-win" for retailers that issued these outstanding cards, but is it really?

Considering most people will end up spending more than the face value of the gift card, retailers lose incremental sales depending on the volume of gift certificates issued. And retailers miss out on beginning or continuing a sales relationship with that customer. Even worse, if the customer cannot find anything they like with the card -- this can leave a lasting impact on the customer that the store will never have something suitable for them.

If suddenly $8 Billion worth of gift cards were to be redeemed in the next 3 months, some retailers *could* even find themselves out of stock for certain items, with long back order lists. For a store like Best Buy, a mass lack of product availability could create negative shopping experiences for everyone else -- another bad impression that can impact future buying decisions.

Issuing electronic gift certificates are one way online retailers can ensure gift certificates are not misplaced (unless they are accidentally deleted). With email addresses on file, reminders can be emailed 3 months and 6 months after the card is gifted to encourage redemption.

E-gift cards benefit giver and recipient too. Cards can be bought from any online store so you can give them even if there's no Abercrombie and Fitch in your neck of the woods or theirs. And purchases can be made at any time of day, even 12:59 on Christmas Eve -- and arrive on time with no postage required. Check out the NRF's 10 Tips for Buying Gift Cards.

Amazon offers 3 gift card options: email a gift certificate, mail a physical gift certificate (with claim code, because there are no physical Amazon stores) or send the gift certificate with an e-card.

Online gift certificates are a feature of the Elastic Path 6 ecommerce platform.

You can download the entire NRF/BIGResearch Research (PDF) here. It's got a ton of interesting data on this year's holiday shopping trends including how much consumers plan to spend this year, on what and where, broken down by age groups and gender.

What's your take on unredeemed gift cards? Are they a win-win for retailers? Should retailers provide incentives to encourage timely redemption?

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