Why Gift Cards Are EvilThey're the best insult money can buy.
Posted Tuesday, Jan. 4, 2005, at 3:45 PM ET
Listen to this story on NPR's Day to Day.
What do you buy when you're too lazy to find a real present? Probably a gift card. In a Christmas shopping season that lacked a must-have product, the most successful item may have been that nondescript, infinitely malleable slice of plastic.
PRINT
DISCUSS
E-MAIL
RSS
RECOMMEND...
Facebook
MySpace
Mixx
Digg
Reddit
del.icio.us
Furl
Ma.gnolia
Sphere
StumbleUponGift cards, which came on the scene in the late 1990s at Blockbuster and Neiman-Marcus, have spread into every nook of the vast retailing sector. Wal-Mart sells them for as little as $10. Barnes & Noble offers them. Fast-food joints like McDonald's and Dunkin' Donuts are getting in on the act. So is American Express. A survey released last October by ValueLink, which creates gift cards for companies, estimated that in the previous 12 months, 64 percent of American adults (139 million people!) either bought or received a gift card, up from just 37 percent in 2002.
After Christmas, Bloomberg news reported that sales of gift cards in the 2004 holiday season may have exceeded the National Retail Federation's prediction of $17.3 billion. Michael Niemira, chief economist at the International Council of Shopping Centers, has suggested that 11 percent of holiday sales may have been embedded in gift cards. And Providence College marketing professor Dan Horne, a gift card specialist, said Americans likely spend between $40 billion and $45 billion annually on gift cards.
The appeal of gift cards is obvious. They save time and mental energy for purchasers, who don't have to struggle to choose the right present. A $50 gift card from Barnes & Noble somehow seems more thoughtful than simply slipping two twenties and a bunch of wrinkled ones into an envelope. For recipients, gift cards ward off the uncomfortable and highly inefficient process of receiving and returning unwanted gifts. Every recipient of a gift card can be honestly and genuinely gracious—who doesn't like free money, after all?
Retailers love gift cards most of all. They're high-margin, low-maintenance sales that can be easily conducted online. They stimulate much-wanted traffic in the post-holiday season doldrums of January and February, especially at restaurants. And to the extent gift cards save merchants the expense and hassle of handling returns of unwanted gifts, they are a huge boon.
So, what's not to like? A few things. Buy a gift card and you're essentially lending cash to the retailer today that is paid back through merchandise tomorrow, or next week, or next month. ValueLink reported that 27 percent of those in its survey blew the cards out within seven days, and another 31 percent did so within a month. Which means that about 42 percent of cards retained some cash value on them for at least a month. Wal-Mart and Neiman-Marcus can borrow all the cash they want from banks or the bond market on rather favorable terms. Do they really need us to extend short-term interest-free loans to them?
And gift cards frequently carry a price for their recipients. Walking into a store with free money in your pocket is like walking into an all-you-can-eat buffet after fasting—you'll feel psychologically impelled and entitled to consume more than usual, because the short-term cost will seem lower. "When customers go into the store, they don't feel constrained to just stick to that card," said Karen Larsen, vice president of global marketing and business development at ValueLink.
That's one of the reasons retailers issue gift cards in low denominations. The Neiman-Marcus $50 gift card won't go very far on its own. Ditto for the $10 card at Wal-Mart. Indeed, ValueLink said that 55 percent of those in its survey spent more than the initial value of the card they received. (In an exquisite example of how commerce blasphemously adopts sacred language, such incremental spending is referred to in the industry as "uplift.") Dan Horne says that "the evidence is that there is incremental spend of 40 percent." But he hastens to note that some shopping experiences are far more uplifting than others. A core Wal-Mart shopper with a $100 gift card might spend $110 on his next visit, providing a mere $10 of uplift. A core Barneys fashion victim, armed with a $100 gift card, might spend $200.
Finally, depending on the recipient's self-esteem and level of paranoia, gift cards can seem a wee bit paternalistic and controlling. Gift cards are tailor-made for recipients who are irresponsible or deficient in taste and self-awareness—or who are simply prone to feeling that way. Give your teenager $50 and she might blow it on midriff-baring halter tops at Abercrombie & Fitch. But that J. Crew gift card can be spent only on presentable clothing. Dismayed that your boyfriend's recent reading list extends only as far as Maxim? A Border's gift card could send a message. For the insecure male on your list, a Thomas Pink gift card could be a not-so-subtle hint that his shirts are blighted with ugly stains.
So, let's review. A gift card is great. But every moment you don't use it, Wal-Mart or some other giant retailer is collecting interest on the giver's cash. When you go to redeem it, chances are you'll end up spending some of your own coin. And it probably reflects the giver's implicit criticism of your poor taste and untrustworthiness. Aren't you glad Christmas is over?
Happy Birthday, Smokey Bear
Are Gas Grills More Eco-Friendly Than Charcoal Ones?
He-Man: Briefs of Rage and Other Toy-Inspired Movies We're Dying To See
Kaus: Seven Possible Theories Explaining Palin's Resignation
The U.S. Embassy in Djibouti Cordially Invites You to a Fourth of July Cookout
The Week's Best Editorial Cartoons
Remarks from the Fray:
Well if we are starting from the premise that gift cards are evil, we can cycle back to our conclusion whether or not there is any "uplift." If I get a $30 gift card, odds are I won't be able to find an item that comes out to exactly $30 after tax, fees, etc. So either I spend a little over by adding some of my money, or I spend a little under and just toss away the gift card with money on it. In the latter scenario, I've gone from making a no-interest loan to the store to making a no-strings-attached grant.
--Jester2459
(To reply, click here)
...A lot of the money never gets redeemed, ever. If the gift card is from a well-meaning grandparent from a store your kids would rather swallow tacks or listen to Sinatra than shop in, chances are you'll tuck the gift card in a drawer and never spend it. It is the retailing equivalent of the franking privilege of a mint: turning cash itself into a collectible. There is also what might be termed "downlift," where you spend $23.95 of that $25 gift card and never spend the last $1.05.
Gift cards are a way of collecting money from people for the privilege of doing the store's marketing. Stores live for traffic. In any other context, they would gladly pay a third party who promised to drive shoppers into their store. That gift card is also a wallet-sized billboard. The effectiveness of advertising is keyed in part to how many times a person looks at the ad. Think of how many times you and the giver look at that cup of steam rising from a mocha next to the Starbucks logo on a gift card. (Some retailers are much smarter about this than others, I have noticed.) Advertising rates, in fact, are often set based on the number of expected "exposures" to consumers. When was the last me you clipped out an ad from the newspaper for a store and carried it around with you? I thought not. Gift cards, especially renewable ones like a Starbucks card, also improve the customer's affinity with the store; beyond the clubbish image of cards the consumer might purchase for him or herself, a gift card also associates the givee with the giver, the season, the good feelings that arose while opening the envelope…
--modicum
(To reply, click here)
The author points out that the card issuer gets to "use" your money until the card is actually redeemed. This is in effect a free loan to them, or they may even loan out such revenue themselves and make money off of it.
But, if you give someone cash, it just sits in their wallet until they spend it. It does not do *anyone* any good. By giving a gift card you not only give its value to the person you give it to, but you may also be helping the business. That is a win-win situation, a great example of why hoarding cash is not so great for the economy. After all, if YOU aren't going to put that $20 bill into some investment into the economy, then some large business can aggregate those $20 gift cards into significant capital that can be used. Unlike cash sitting in the billfold or under the mattress. If gift card to the local bookstore (or even a big chain) can both induce my young relatives into even *entering* a bookstore, and help the business out, then I'm all for it…
--fozzy
(To reply, click here)
…This may come as a big surprise to folks like Gross, who can only badmouth the gift card and numerate its deficiencies, but many people are stressed out and just as many are, to use a favorite expression of my mother, "borrowing from Peter to pay Paul." I gave, both, my roommate and my mother Barnes and Noble cards. Before going to see a film on New Year's Day, my roommate and I went to Barnes and Noble, where he purchased two CDs (neither of which I knew he wanted, incidentally). As, Gross reports, there is a "uplift." For my roommate, it was nine bucks. It didn't put him out and he thanked me again for the gift card. It made me feel good that he gave himself what he wanted and that I was, well, the conduit.
Forgive me, but isn't the holiday about making others happy? For a lot of adults, frankly, the holidays cease to be about what they want while focusing on kids and grandkids. I'm sure Gross would concur. So, maybe, part of that happiness should be for an adult to walk into the store like the sky's the limit, even if it means throwing in what they feel comfortable with spending for a little "uplift."
--Splendid_IREny
(To reply, click here)
(1/5)