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Blog of Mass Destruction

Gift Cards

By The Reverend Published: December 24, 2010

You buy them, you receive them as gifts. Seems like everyone sells them. Gift cards.

I've been wanting to say something about gift cards for awhile, and Christmas Eve seems like an appropriate time to do so. Now, just so we all understand each other....the rotation of the earth doesn't depend on whether U.S. retailers sell gift cards and U.S. consumers purchase them. Gift cards are simply a pet peeve of mine. At the same time, I think gift cards are illustrative of America's modern money shuffling, productionless, transactional economy.

Before I get to that.....there's no question that gift cards have been embraced by American consumers...

Once derided as impersonal last-minute gifts, gift cards have begun to lose their stigma as consumers have become more focused on function and value in the post-recession era.

Americans are expected to spend an average of $145.61 on gift cards, up from $139.91 last year, for a total of $24.78 billion this holiday season, according to the National Retail Federation.

That's a lot of gift cards. The author of the article says the "stigma" of giving gift cards has diminished and that consumers are now focusing on "function and value." Broadly interpretive characteristics, I would argue.

The "value" of gift cards is convenience for the buyer. The gift card buyer doesn't really have to shop for a gift. Not a whole lot of thought must be expended on what to get someone for Christmas.....and be honest...isn't that the biggest problem with buying Christmas gifts....not knowing what to buy for your friend or loved one?

With a gift card as a...gift, all you have to do is think of which stores the recipient-to-be frequents and what denomination card you want. Quick, easy, convenient, painless. All qualities Americans gravitate towards naturally.

What about the "value" part in a dollars and cents....sense? Who really receives the "value" of gift cards?

Last year, consumers lost about $5 billion in gift card value — compared with $87 billion in gift card sales during all of last year — due to unredeemed value, expiration or loss of gift cards, according to the research firm TowerGroup.

Just under 6% of the value of gift cards purchased from retailers....is lost. Theoretically......you go into your local Giant Eagle, you find the gift card displays, you buy $100 worth of gift cards for Best Buy, Home Depot, Verizon....you name it....to hand out as gifts. Only $94 of your original $100 is ever redeemed. It's free and easy money for the retailers.

Not only that but also this....

There's a 116 percent conversion on gift cards, Cohen said, meaning that when customers redeem them, they usually end up spending more than the gift card value.

So, in addition to the average loss per card of 6%.....retailers have found that those who do redeem the full worth, also purchase more than the gift card denomination. By 16%.

Those are the reasons why gift card sales continue to increase. Americans are time-strapped, we seek convenience, we're kind of lazy, and it's harder and harder to come up with gift ideas because Americans have too much stuff already.....AND.... retailers who sell gift cards are playing the money shuffling percentages which favor them.

Over the last few years, an entirely new money shuffling industry has sprung up. Companies that will buy or trade your gift cards from you....you know, for a fee.

Butler's Cardavenue, for instance, takes nearly 4 percent from the seller and both parties in a trade, on top of 50-cent fees and mailing costs. Other sites, such as Plastic Jungle, charge up to 10 percent for these transactions, plus shipping. Plastic Jungle also converts certain gift cards into cash, minus commissions of 35 percent to 45 percent.

If I have $100 to spend for Christmas, and I decide to turn that $100 into $100 worth of gift cards....I know that only $94 of that $100, on average, will ever be redeemed. I also know that the person or persons I give those gift cards to can easily change those gift cards back into cash....most likely, at a significantly reduced face value.

Better, I'd say, to just give cash in the first place.

More and more, this micro look at gift cards is indicative of how our macro economy functions. 40% of corporate profits of late have come from the financial sector where production-less money shuffling never ends. Banksters continue to invent new algorithmic number schemes for the purpose of bilking others out of some of their money. Transactions have replaced real world products and services.

It's no longer the product or the service which matters most, not really. It's only the transaction that matters.

Like with gift cards.

Have a great Christmas everyone.

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