December 05, 2007
The After Market in Gift Cards
Posted by Lisa Fairfax

Although I am usually reluctant to give gift cards because they seem too impersonal, I will admit that they are my fall-back gift of choice.  Apparently, other people do not share my reluctance.  Thus, Consumer Reports reveals that a majority of shoppers will give at least one gift card this holiday season.  Then too, at least one poll reveals that gift cards top the wish list for a majority of consumers--so I need not be concerned that people will find my gift card inappropriate. Alas, as others have noted, including those on this blog, there are many problems associated with gift cards, particularly the problem that so many of them go unredeemed.  The National Retail Foundation estimates that, similar to last year, this year there will be some $8 billion in unredeemed gift cards.  The fact that consumers are leaving so much money on the table has many concerned.  Thus, legislatures have been crafting laws aimed at addressing the problem of unredeemed gift cards.  Moreover, in November of this year, Consumer Reports began running a full page ad in the New York Times essentially reminding consumers not to lose money through gift cards that become lost, expired, or simply unused.  But others are seeking to capitalize off of this phenomenon.

Indeed, a couple of companies have emerged that allow people to buy, sell, and trade gift cards.  Two examples are Plastic Jungle and Cardavenue.  Plastic Jungle allows people to sell their gift cards at less than fair value for a fee, and to buy gift cards for less than their full value while Plastic Jungle keeps the difference.  Cardavenue even has an auction for gift cards.

To be sure, these companies certainly will not solve the problem of unredeemed gift cards, particularly for those people who put their cards in an envelope never to be found again.  However, they do allow some important benefits, providing consumers with an efficient way to get cash for their gift cards or get rid of those cards at stores they never shop.  I also suspect it allows purchasers to "bundle" cards to obtain the optimal amount they would like to use at a given store, while enabling sellers to get rid of those cards that only have a small value.  Moreover, while some have suggested that these cards are a "win-win" for retailers, they in fact are an accounting headache.  Therefore, to the extent that these companies facilitate greater use of gift cards, they also provide benefits for companies by allowing them to reduce the liability they must carry on their balance sheet.  And maybe that is a "win-win."  At the very least, the emergence of these companies suggest that when there is money left on the table (albeit in the form of a gift card), the market will find a way to spend it.

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