When it comes to gift giving, retailers and merchants love gift cards. They’re convenient, flexible and an easy way to give a present. They’re also a great way to boost sales. However, there’s one big downside to gift cards: they often go unredeemed.
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 survey at CreditCards.com:
“According to the survey, the average amount of unspent gift cards, vouchers and store credits is $175 per person, up from $116 last year. In aggregate, that’s a total of roughly $21 billion in unspent cash for the entire U.S. adult population.
If you’re a young adult, be particularly careful to check your pockets and messages for overlooked gift cards. Fifty-two percent of millennials and 51 percent of Gen Zers are likely to have unused ones hanging around. That doesn’t mean older people are unlikely to have these gift cards gathering dust, however. Forty-three percent of Gen Xers and 42 percent of boomers also have them.”
Sales of Deferred Revenue Products
The survey addresses unused gift cards, resulting in unrecognized revenue liabilities for the retailer community. As a consumer survey it is likely only going to uncover the liability, much of which will be spent accordingly in a reasonable amount of time versus the unrecognized revenue. Mercator research showed an overall increase in purchases during 2021, corresponding to a similar time frame as the YouGov study. To highlight this, using data from Home Depot annual reports we can identify a large increase in sales of deferred revenue products from 2019-2021, which would include gift cards as well as other deferred services such as installation services paid for but not completed as an example. In the same time frame unrecognized gift card balances reported by Home Depot increased, but at a slower rate than deferred revenue products, giving Home Depot consistently decreasing unrecognized gift card balances as a percent of their deferred revenue as highlighted in the table below:
| Total Deferred Revenue Products (in millions) | Unrecognized Gift Card Balances (in millions) | Total Unrecognized GC Balance as a Percent of 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 Home Depot validates a secondary point in the aforementioned study that indicates most people will use some or all of their gift card balances within 12 months:
“The survey also discovered that 45 percent of people who have unused gift cards say they will use all of them within the next 12 months. Others will wait it out, with 30 percent saying they will use most of their cards and 16 percent planning to use a few. The remaining 9 percent say they will keep all of their gift cards.”
Combining these two data points shows that the growing balances are more of a result of volume increases and that the cyclical nature of the gift card purchase to redemption path will continue to show balances that are in-line or below historical trends. When purchases go up, so will unrecognized balances, but the percent of liabilities will, at worst, remain constant and potentially decrease as in the case of Home Depot.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.