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The gift that stopped giving: How unredeemed gift cards make millions

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Retailers are banking millions of dollars a year from unredeemed gift cards that have passed their use-by dates. But it turns out an expired card may yet have some value.

It was an early household radio that was first snappily advertised as “the gift that keeps on giving”. But it took the invention of gift cards to provide us with a gift that stopped giving.

This was brought home to me in October when I discovered in an overstuffed wallet a Westfield gift card for $50 that had expired on September 7. It was almost in the bin when I thought it was worth checking whether I really had done my dough.

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An email to the relevant department produced good news: Westfield offered a “grace period” of three months and – this bit stunned me – expired cards could be replaced at the customer service desk at a Westfield centre at no cost. The replacement card would be valid for another 12 months, and would also have the grace period. So the card can expire, but the value it represents does not.

A spokeswoman at Westfield’s head office in Australia confirmed this, though she added that replacements were reissued “at the discretion of the centre”.

“It is likely it would be reissued,” she said, “but … we’d rather not promote this, to avoid customer disappointment.”

Some might think that a surer way to avoid customers’ disappointment would be to widely promote the fact that you would, in fact, recognise that the money they had been given when the card was bought entitled them to something in return. But at least you know now.

Retail rescue

A gift card is a lifesaver for a drowning Christmas shopper. It solves the problem of having to come up with an original idea for a gift that you know the receiver will like but does not already have. For the receiver, it is as good as cash, but lacks the impersonal tone of folding money, even if it can create an uncomfortable impression that a relationship has been assigned a dollar value.

But Consumer NZ says that 24% of gift cards expire with unused credit. Of those, more than half the users lost more than $20 and 10% lost more than $60 – the entire average value.

Consumer, which is campaigning to have the expiry dates removed, undertook an online survey of more than 1000 people in response to public complaints. It calculates that shoppers here lose at least $10 million a year in expired value.

Sue Chetwin. Photo/Supplied

Worldwide, the numbers are eye-watering. Research firm TowerGroup reported that  in the US, US$41 billion ($61.5 billion) of gift-card value went unused between 2005 and 2012. The figure dropped from US$8 billion in 2007 to US$2 billion in 2011 after the passage of a federal law requiring five-year validity.

In Australia, where 1.9 million people lost A$148 million ($160 million) last year alone, three-year validity will be required from next November. Ireland plans to require a minimum validity of five years.

Consumer’s “Drop the Date” campaign has persuaded big players including Countdown, Kathmandu and JB Hi-Fi to drop the 12-month expiry on gift cards.

The Body Shop, Four Square, New World and Pak’nSave, among others, have doubled the one-year validity of their cards, and some (notably Bunnings and Barkers) have never had expiry dates. But others are standing firm.

Consumer claims that retailers, who are coy about revealing how much they earn from unredeemed cards, typically calculate gift-card income on the assumption that a percentage of users will never spend all their entitlement. The businesses are, quite literally, getting money for nothing.

Money in the bank

For retailers, of course, gift cards are money in the bank and there is a chance – between 4% and 10%, depending on who you talk to – that they’ll never have to give anything in return for it. Gift Station (aka epay), which operates a gift-card scheme for a range of major retailers, including the four big petrol companies and the three big supermarkets, describes gift cards on its website as “the ultimate customer acquisition tool”.

That said, unused gift cards are a problem for retailers. They are what is known by accountants as a contingent liability – one that may or may not be incurred. Carrying them over from year to year creates uncertainty for the business, the argument goes.

It has some merit, although most of the businesses the Listener spoke to said very few gift cards went unused: minimising the consumer-rights problem and maximising the accounting difficulty does have the whiff of wanting it both ways. And it doesn’t seem to present a problem for the retailers who do not apply expiry dates.

Lincoln Gould, the chief executive of Booksellers New Zealand, which operates an industry-wide scheme with a three-month grace period, says the policy has always been that expired cards were replaced with paper book tokens to the same amount “because we don’t like to see people done out of their money in that way”.

Rod Duke. Photo/Getty Images

But he says that Inland Revenue auditors 10 years ago ruled that unredeemed tokens (known in the business as “breakage”) constituted income, and the organisation was stung with a big bill. Now breakage – $75,000 in tokens and cards for the most recent year available – is taxed annually.

Accounting difficulties aside, expiry dates seem to contravene the idea of a fair go. A voucher that entitles you to a specific item or service might reasonably be expected to have a use-by date, since the value would effectively increase as prices rose with inflation, but $50 is $50 and that won’t change. As Consumer chief executive Sue Chetwin says, expiry dates leave customers at retailers’ mercy.

“Why should you have to ask them if it’s all right to use it when it represents money paid. We think the accounting problems are bollocks, actually. They’re quite happy to take the money; if they gave it to charity or something, it would be different.”

Chetwin is hopeful of some political action on the issue. “The last Government wouldn’t have a bar of it, but this new Government has been more receptive. Everything we put up they are prepared to listen to.”

But unless and until there is some regulation, Briscoe Group boss Rod Duke will be sticking to the 12-month limit at group stores, which include Rebel Sport.

“I suspect that most of the ones that expire with credit unused, it’s only a couple of dollars,” he says. “The reason for the expiry date is we want the customer to feel that they should come in and spend it. But if someone comes in with an expired card, we’ll work something out.

“A guy came in a few weeks ago with a card that had expired years ago that he found in his mother’s drawer after she had died. ‘What am I going to do with that?’ he asked, and I said, ‘Well, let’s go and spend it.’ I’m in the business of making customers happy.”

Expert advice

Tips for getting the most from your gift card.

  • Spend it as soon as you can in case the store sells or goes into receivership.
  • Don’t buy something you don’t need just to spend it. It makes no more sense to do so with a gift card than with cash.
  • If you are contemplating a purchase, ask yourself whether your gift card can be used.
  • Set a reminder or make a diary entry for a month before the expiry date to remind yourself to spend it. (If you’re not going to keep it in your wallet or purse, add a note to remind you where you put it.)
  • Spend the entire value even if it means supplementing it with a bit of cash. Statistically, you are unlikely to ever return to spend a residual few dollars and it will be money wasted.
  • If the card expires, approach the retailer as soon as you notice. If not much time has passed, chances are it will be honoured. Even if it is old, you might be in luck. The merchant wants your custom and knows that most people who come in with a gift card spend more than its value.
  • If you are buying a gift card for someone, choose one that is valid at a range of stores. It will make it easier to spend.

This editorial was first published in the December 1, 2018 issue of the New Zealand Listener.