Gift card balances increase with purchases

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When it comes to gift giving, retailers and merchants love gift cards. They are practical, flexible and an easy way to give a gift. They are also a great way to increase sales. However, there is a big downside to gift cards: they often go unused.

Unused gift cards

A recent study commissioned by CreditCards.com and conducted by YouGov.com highlights a perceived increase in the number of unused gift cards and the value associated with them. Erica Sandberg summarizes the results of the CreditCards.com survey:

“According to the survey, the average amount of unspent gift cards, vouchers and store credit is $175 per person, compared to $116 last year. In total, this represents a total of approximately $21 billion. dollars in unspent cash for the entire US adult population.

If you’re a young adult, be especially careful to check your pockets and messages for forgotten gift cards. Fifty-two percent of millennials and 51 percent of Gen Z are likely to have unused stuff lying around. That doesn’t mean seniors aren’t likely to gather dust, though. Forty-three percent of Gen Xers and 42% of baby boomers also have it. »

Sales of deferred income products

The investigation focuses on unused gift cards resulting in unrecognized revenue liabilities for the retail community. As a consumer survey, it will likely only uncover liabilities, much of which will be spent accordingly within a reasonable amount of time against unrecognized revenue. The Mercator study showed an overall increase in purchases in 2021, corresponding to a period similar to that of the YouGov study. To highlight this, using data from The Home Depot Annual Reports, we can identify a strong increase in sales of deferred revenue products from 2019 to 2021, which would include gift cards as well as other deferred services such as paid but not completed installation services as Example. During the same period, unrecognized gift card balances reported by Home Depot increased, but at a slower rate than deferred revenue products, which allowed Home Depot to steadily decrease gift card balances. unrecognized gifts as a percentage of their deferred revenue, as shown in the table below:

Deferred total
Income products
(in millions)
Unrecognized gift
Card Balances
(in millions)
Total GC not recognized
Balance in percentage
of the current year
Deferred revenue
2022 $2,600.00 $1,000.00 38%
2021 $1,900.00 $839.00 44%
2020 $1,300.00 $721.00 55%

The data provided by The Home Depot validates a secondary point of the aforementioned study which indicates that most people will redeem some or all of their gift card balances within 12 months:

“The survey also revealed that 45% of people who have unused gift cards say they will use them all within the next 12 months. Others will wait, with 30% saying they will use most of their cards and 16% planning to use a few. The remaining 9% say they will keep all their gift cards.

The combination of these two data points shows that growing balances are more the result of increases in volume and that the cyclical nature of the purchase of gift cards through the redemption path will continue to show consistent balances or below historical trends. When purchases increase, unaccounted balances also increase, but the percentage of liabilities will, at worst, remain constant and potentially decrease, as in the case of Home Depot.

Preview by Jordan HirschfieldDirector of Prepaid Advisory Services at Mercator Advisory Group.

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