You may be a huge fan of receiving gift cards for special occasions, or you may be in the camp of people who think that gift cards are a lazy gift.
Regardless of what your personal opinions on gift cards as gifts may be, it is undeniable that stores benefit incredibly from gift card sales. So, how do stores make money from gift cards? Isn’t all they are doing giving free credit away?
Well, not exactly. Gift cards are an incredibly lucrative way for stores to make some extra money without even necessarily having to front much money at all for the actual product itself.
In this article, we will discuss the different ways in which stores make money from gift cards, including how they make money from selling gift cards to other businesses.
Who is Interested in Gift Cards?
Gift cards make an excellent gift idea for someone that you may not know as well or someone that is extremely hard to buy gifts for. By purchasing a gift card instead of a gift that is likely to not go over well, you’re saving yourself from a lot of potential embarrassment by buying a bad gift.
Other scenarios in which you may want to purchase a gift card for someone instead of a physical gift are because the product or service that you want to get for them is too personal of a decision to make for the person for whom you are buying a gift.
For example, you may know that your best friend has desperately been wanting new makeup, but buying makeup is an intensely personal decision.
From knowing their shade of foundation to knowing which brand of eyeshadow they like; it may be impossible for you to pick out makeup for them. This makes a gift card a much safer pick and still a satisfying gift for your best friend to unwrap.
Here are the top ways in which stores make money from gift cards:
- You will rarely make purchases that equal the amount of a gift card exactly.
- Some people forget about their gift cards.
- Guaranteed future sales.
- Selling gift cards for other retailers can be simple and lucrative.
- Using gift cards as coupons.
Let’s look closely at each of these income sources for stores that sell gift cards to their customers.
#1. You will rarely make purchases that equal the amount of a gift card exactly.
It may come as a surprise to you, but people will rarely make purchases that equal the amount of a gift card exactly. How many items out there are exactly $25 or even exactly $50?
In the world of retail, most prices are combinations of prices that end in 99, 95, or even 50 cents. This means that when you are purchasing one or multiple items, you are not very likely to use up the full entirety of your gift card without going over or under the balance of the card.
If you leave $3 and some change on a gift card in perpetuity, that is profit that the store has already realized through the sale of the gift card, but it will be confirmed by your lack of using your store credit.
In this way, the store has made an additional percentage of money off of this gift card sale because they did not have to pay toward any cost of goods on the remaining money on the gift card.
#2. Some people forget about their gift cards.
Just like that extra profit that stores realize from leftover gift card money, imagine how much money stores make from gift cards that are completely lost or forgotten about!
If you are just thinking about gift cards in the terms of a store exchanging cash for store credit, you are failing to realize the earning potential that exists when people forget about or lose their store credit. How many gift cards are sitting in your wallet unused? The number may surprise you.
In this way, stores are realizing the full extent of the profit because they accepted cash in return for essentially nothing, with that gift card forever out in the world without being used.
#3. Guaranteed future sales.
Gift cards are an amazingly powerful marketing tool! When someone purchases a gift card for a friend or family member, they are just about guaranteeing that that friend or family member will come into the store or go online to make a purchase.
This gives a store the opportunity to advertise to this person and persuade them to purchase more than the value of the gift card that they have in order to maximize their profits.
Offering gift cards is one of the ways a department store attracts new customers to it.
#4. Selling gift cards for other retailers can be simple and lucrative.
You may notice stores, especially convenience stores, that sell gift cards for other stores in them and wonder how either party is able to make money off of such an arrangement.
However, it’s really quite simple! When stores engage in these kinds of partnerships, the store that wants to sell their gift card in another store offers the selling store a certain percentage based on sales.
These arrangements are typically advantageous for both stores involved in the process!
#5. Using gift cards as coupons.
Target is an especially famous example of a store that does not offer many traditional coupon deals but instead offers deals to receive a $5 or $10 gift card in return for buying so many of a product.
In this way, Target and other stores are able to take advantage of guaranteed new sales by reeling people in with a discount that they have to use by returning to the store for another trip!
Conclusion
So, how do stores make money from gift cards?
In this article, we reviewed 5 different ways. People use gift cards but never use the full amount. The rest is for the store. Many people purchase gift cards and then forget about them. Gift cards are also a guarantee of future purchases with immediate positive cash flow.
Stores make money by selling gift cards of other retailers. This can be a simple and lucrative trade. And finally, stores make money by using gift cards as coupons.
