the staff of the Ridgewood blog
Ridgewood NJ, each year, Americans spend billions on gift cards, making them a go-to holiday present. But what happens when these cards go unused? While gift cards are marketed as convenient and thoughtful, their unredeemed balances often translate into a windfall for corporations.
The Popularity of Gift Cards
Gift cards have dominated wish lists for over a decade. In fact, they account for 55% of the average shopper’s annual gift budget, surpassing trendy items like AirPods or gaming consoles. Their appeal lies in their simplicity: they provide hassle-free gifting for buyers and flexible spending for recipients.
Yet, not all gift cards are redeemed. Whether due to forgetfulness, loss, or expiration, a significant portion of gift card balances remains unspent.
How Much Money Goes Unused?
Research reveals that while 70% of gift cards are redeemed within six months, about 6% of gift cards are never used, leaving between 10% to 19% of balances unredeemed. Over the past decade, this has added up to staggering amounts:
- Between 2005 and 2015, unredeemed gift card balances totaled $45.7 billion.
- In 2017 alone, companies like Starbucks and Best Buy reported millions in “breakage income”—money from unredeemed cards:
- Starbucks: $105 million
- Best Buy: $37 million
- Home Depot: $34 million
Why Don’t Gift Cards Get Used?
Several factors contribute to unused gift cards, including:
- Forgetting about them
- Losing the physical card
- Disliking or lacking access to the retailer
- Failing to use small leftover balances
- Expiration or inactivity fees in some states
What Happens to Unused Balances?
For retailers, unused gift card balances become breakage income. After a set period (typically 6–24 months), companies can reclassify these funds as revenue. For example, if a $25 gift card to The Cheesecake Factory goes unredeemed, the company effectively earns $25 at a 100% profit margin.
Why Retailers Love Gift Cards
Gift cards are a financial boon for businesses:
- 75% of customers spend more than the card’s value.
- The average shopper spends $59 beyond the gift card amount.
- Gift cards prompt repeat visits and encourage customers to pay full price.
Even when gift cards are redeemed, they serve as a powerful tool for driving sales, increasing foot traffic, and acquiring new customers.
Is Cash a Better Alternative?
From an economic standpoint, cash is a more efficient gift. A famous study by economist Joel Waldfogel revealed that recipients often value gifts at 10%–30% less than their purchase price. For instance, $50 spent on a gift card may only provide $40 worth of perceived value.
While cash may lack the personal touch of a gift card, it eliminates the risk of unredeemed balances and allows recipients to spend freely.
Unlocking Value: Gift Card Resale Platforms
For those stuck with unused gift cards, resale platforms offer a solution. These sites let users exchange cards for 60%–90% of their value in cash, freeing funds for more versatile spending.
Conclusion
Gift cards remain a beloved gift option, but their economics reveal a hidden cost: billions in unredeemed balances benefiting corporations. While they’re a practical choice for gifting, understanding their limitations can help consumers make better decisions—whether it’s choosing cash or using platforms to reclaim value from unused cards.
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