[HN Gopher] Starbucks claims $181M in revenue from unused gift c...
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Starbucks claims $181M in revenue from unused gift cards (2022)
Author : superzamp
Score : 84 points
Date : 2023-04-26 14:55 UTC (8 hours ago)
(HTM) web link (www.pymnts.com)
(TXT) w3m dump (www.pymnts.com)
| smnrchrds wrote:
| It's one of those things that consumer protection laws should
| fix. By law, most gift cards cannot expire in my province in
| Canada.
|
| > _Gift cards purchased in Alberta are not subject to expiry
| dates and fees that lower their value over time. This includes
| cards purchased in Alberta on the internet._
|
| https://www.alberta.ca/information-about-gift-cards.aspx
| papercrane wrote:
| Starbucks gift cards don't expire. It's standard account
| practice to recognize a percentage of your unused gift card
| balance as revenue as no company ever sees 100% redemption
| rates of gift cards. They call this "breakage".
| tesseract wrote:
| I think that's also true in most of the US for first-party gift
| cards like Starbucks.
|
| The typical offenders for expiration dates and/or fees are
| bank-issued gift cards that run via a credit card network. Does
| the Alberta regulation cover those?
| smnrchrds wrote:
| No. Those are unfortunately exempt.
| gffrd wrote:
| What a nice little interest-free loan for them!
| papercrane wrote:
| The interest free loan is more like $1B dollars. This $181M is
| the breakage, the left over gift card balances that are
| unlikely to be redeemed and they are recognizing as revenue.
| e.g. The $2 left on a $20 gift card that someone doesn't bother
| redeeming.
|
| They also get another $1B of deposits from people loading money
| onto their app to pay for drinks. Starbucks is basically
| sitting on the equivalent of a small banks deposits at any
| given time.
| tamaharbor wrote:
| I had acquired $300 on a rewards on a card from Bright Health
| Care. But when I switched health insurance companies, my $300 was
| gone without warning.
| LightBug1 wrote:
| I'm sure this was an entirely unplanned enterprise...
| 97-109-107 wrote:
| How the payments industry thinks of gift cards is a relevant
| article by our member patio11 - [More than you want to know about
| gift cards](https://www.bitsaboutmoney.com/archive/more-than-you-
| want-to...)
| forgotusername6 wrote:
| I once had a gift card that had a management fee in the small
| print. By the time I remembered it the PS10 had all been eaten by
| the 40p a month fee.
| superzamp wrote:
| Yikes that seems insane, do you remember which vendor it was?
| forgotusername6 wrote:
| I think it was a love2shop card. One of those that is valid
| at multiple retailers.
| mrguyorama wrote:
| This is no longer allowed in most of the US.
| [deleted]
| black_13 wrote:
| [dead]
| JohnFen wrote:
| Every so often, companies I've worked for have given me Starbucks
| or Amazon cards as rewards. I have no use for either of them,
| though, so typically I give them to someone else. Amazon cards
| are easy -- they go to my (adult) children.
|
| Starbucks are more difficult, though. I sometimes have trouble
| giving them away, then they get lost or accidentally thrown away.
| I bet Starbucks has made more money off me from that than from me
| purchasing their products.
| ProAm wrote:
| Gift cards from work always go in the trash, they are a hassle
| to remember you have one, tote it around or redeem it at a
| place I probably don't frequent enough.
| triceratops wrote:
| If you're throwing them in the trash, why not give them out
| whenever you're expected to tip?
| ProAm wrote:
| Its just convenience. Its not worth it to lug them around
| and try to remember you have one.
| teachrdan wrote:
| I've given Starbucks gift cards to homeless folks, who were
| always happy to receive them. And in California, businesses
| must give you cash for a gift card if it's less than $10 in
| value.
|
| https://www.giftcardgranny.com/blog/5-important-facts-
| about-...
| tempoponet wrote:
| Both Amazon and Starbucks gift cards can be credited to your
| account balanced and be redeemed via the app.
| ProAm wrote:
| I dont really shop at either often enough to make this
| worth it.
| streptomycin wrote:
| There are various websites that let you sell basically any gift
| card for like 80% of face value, such as cardcash.com. That's
| what I do with nearly every gift card I am ever given.
| JohnFen wrote:
| True, but to be completely honest, that sort of thing is more
| hassle than it's worth to me.
| [deleted]
| popotamonga wrote:
| In one of my businesses, hotel booking, i also sell gift cards
| and market them agressively in festive seasons.1 year validity.
| 45% goes unclaimed, its now 20% of total profit (all legal here,
| expiry date in a large font)
| exabrial wrote:
| Sleazy, unethical, and probably illegal. As an example: Kansas
| for instance, among other states, has unclaimed property law
| and these things must be turned over to the state.
| benburleson wrote:
| That seems...sleazy.
| triceratops wrote:
| Serious question: what should a business owner do? Track down
| every gift card buyer and refund their money?
| mrguyorama wrote:
| In many states that is the explicit requirement yes. They
| are considered unclaimed property and must be handed over
| to the state to return to the individual.
| el_benhameen wrote:
| That seems deeply unethical and, at least in California,
| illegal. Not something I'd brag about in any case.
| nicenewtemp84 wrote:
| Is it really illegal that for a discounted fee you get access
| to a hotel room during the next year? If that's the agreement
| you make? If I could pay $100 now to get my whole family into
| Disney land any weekday in 2024, I'd pay for that.
|
| That's not the same as putting $100 on a hotel gift card
| which you can use anywhere anytime at the hotels many
| properties, maybe to cover a pet fee or cleaning fee or
| parking, or to reduce the cost of a room during a peak cost
| period like 4th of july.
| el_benhameen wrote:
| I'm not really clear on what you're saying, but it seems
| like you may have misunderstood the original post. In any
| case, the illegal part, at least in CA, is having an expiry
| date on most types of gift certificates/gift cards.
| amir734jj wrote:
| Because the credit we load into account "expires". That's the
| trick they use to make money.
| rahimnathwani wrote:
| From Starbucks' web site:
|
| "We do not charge any activation, service, dormancy or
| inactivity fees in connection with your Starbucks Card. Your
| Starbucks Card has no expiration date nor does the value on
| your Starbucks Card ever expire."
| nly wrote:
| So how is it revenue? Sounds like a liability
| NullPrefix wrote:
| It is revenue, because Starbucks received the money
| already. It's not profit, because they have no idea how
| much will they spend on whatever the customers will buy
| with those gift cards
| rahimnathwani wrote:
| That's not how accounting works. Revenues are not
| recognized until they are earned. It doesn't count as
| revenue until it's either used (someone buys a coffee) or
| it's deemed likely to never be redeemed.
|
| The latter calculation is likely an aggregate across all
| cards, not based on a per-card level prediction.
|
| Breakage refers to the portion of gift card balances that
| remains unspent by customers, which is eventually
| recognized as revenue by the issuing company. It is
| calculated based on historical redemption patterns and
| the probability that a gift card will never be used. The
| recognition of breakage revenue, however, doesn't affect
| a customer's ability to use an unexpired gift card. The
| card's value remains intact and can still be redeemed for
| goods or services, regardless of the breakage revenue
| recognition by the company.
| toast0 wrote:
| > That's not how accounting works. Revenues are not
| recognized until they are earned.
|
| You've described _accrual_ accounting. I believe publicly
| traded companies (including Starbucks specifically) are
| held to GAAP which includes accrual accounting; but
| private businesses can choose between accrual accounting
| and cash accounting (but, afaik, you can 't switch willy-
| nilly).
| miles wrote:
| > It is revenue, because Starbucks received the money
| already.
|
| I initially upvoted your besieged comment because that
| seemed to make sense, and well, it _was_ the actual title
| of the piece ( _Starbucks Claims $181M in Revenue From
| Unused Gift Cards and Loyalty Credits_ ) and appeared to
| be quite unambiguous in the article ("Starbucks
| reportedly claimed $181 million in revenue from money on
| gift cards and loyalty accounts that customers didn't
| spend in fiscal year 2021 -- a figure that amounted to
| about 1% of its sales and 4.3% of its net income during
| the year.").
|
| However, following a twinge of remorse and uncertainty
| after downvoting rahimnathwani's reply, a quick search
| revealed that he is correct:
|
| _How to Properly Recognize Gift Card Revenue_ [1]:
| "Companies cannot recognize revenue upon the initial sale
| of a gift card because of a key revenue recognition
| principle that states that revenue is recognized when or
| as an entity satisfies a performance obligation by
| transferring a promised good or service to a customer."
|
| _Balancing act: how to account for your restaurant gift
| cards_ [2]: "Gift card purchases are generally classified
| as a deferred revenue liability. The cash received from
| the sale is paid upfront but does not qualify for revenue
| recognition as no goods or services have been exchanged.
| Gift card purchases are recorded as deferred revenue and
| subsequently recognized as revenue as the gift card is
| redeemed in the future."
|
| Happily the window was still open to undown, but the
| experience was a great lesson in not racing to judgement
| or downvoting.
|
| [1] https://www.leapfin.com/blog/how-to-properly-
| recognize-gift-...
|
| [2] https://www.bakertilly.com/insights/balancing-act-
| how-accoun...
| johngalt_ wrote:
| While the card is not used they can invest the money and
| the interest earned is a financial revenue.
| mrguyorama wrote:
| Companies bet on something like 2-5% of "breakage". That is
| the main profit motive behind gift cards. There are various
| claims of using them as marketing and a system to refund
| people without letting them out of your loop, but the major
| reason anyone pays what they do to a certain company to
| sell gift cards (almost nobody does it themselves anymore)
| is to get that breakage profit.
|
| Gift cards are a subsidy from forgetful people to a
| business. Industry research also shows that people prefer
| to receive cash as a gift, but prefer to GIVE gift cards,
| because they are marketed as a "more thoughtful" gift, as
| if putting a brand name on some cash is thoughtful. Gift
| cards are an exclusively selfish gift.
| JohnFen wrote:
| > prefer to GIVE gift cards, because they are marketed as
| a "more thoughtful" gift
|
| That's actually fascinating. I would _never_ give a gift
| card as an actual gift to people, because that strikes me
| as being lazier and less thoughtful than just giving them
| cash.
| mrguyorama wrote:
| I want to expand on this. Companies use gift cards for
| all sorts of strange things. We once had a company that
| treated gift cards as tickets to their events. You bought
| a set price "gift card" on their website, and redeemed it
| at the event, but there was no other use of it.
|
| Our sales pitch to companies is also about treating gift
| cards as a marketing tool, mainly by giving away gift
| cards for certain purchases during sales. For example,
| IKEA once had a promotion where they would give you a ten
| dollar giftcard for every one hundred dollars of gift
| cards you bought. Unlike most companies pushing one of
| these promotions, they chose not to set an upper limit.
| The result was hilarious and predictable.
| rahimnathwani wrote:
| The balance is a liability. When some portion of that
| liability balance is deemed to be unlikely to ever be
| realized, you debit the liability account, and credit the
| revenue account.
| timgedenk wrote:
| gift cards also work insanely well in the software business,
| people are always searching for gifts, use this chance guys
| ZooCow wrote:
| It's also a way for them to save on credit card processing fees
| by trading the fees of multiple (relatively) small drink
| purchases for one fee for the gift card purchase.
|
| An often overlooked innovation of iTunes was delayed billing,
| which converted multiple separate song transactions into one
| bundled transaction to save on credit card transaction fees.
| Loic wrote:
| Highway tolls in France have been doing it for something like
| 20 years.
| capableweb wrote:
| Yeah, but not in the US so obviously it doesn't count as
| _true_ innovation.
| [deleted]
| hammock wrote:
| >delayed billing, which converted multiple separate song
| transactions into one bundled transaction to save on credit
| card transaction fees.
|
| Uber and Lyft do it now. It ought to be illegal, or opt-in
| (with a discount to the customer). Delayed billing wreaks havoc
| on the majority of Americans who live paycheck to paycheck
| sosodev wrote:
| Don't they authorize each individual ride and then bundle
| them up into a single transaction?
| TheNewsIsHere wrote:
| This thread is confusing to me. I am in the US and I use
| Uber. I've never had this experience. Every time I use
| Uber, I see one transaction per ride, and depending on when
| I remember (or see the prompt) to tip, that may or may not
| be another single transaction.
|
| Edit: s/threat/thread
| jstarfish wrote:
| It _is_ a discount to that customer demographic.
|
| For debit cards, imagine your account has $0.01 in it and
| about to be overdrawn. Each transaction from here on out will
| net you a $35 overdraft fee.
|
| Accounting for the fees, would you rather have 5 immediate
| charges of $1, or 1 delayed charge for $5?
|
| For credit cards, there's no overdraft, just a hard cutoff.
| prirun wrote:
| > For debit cards, imagine your account has $0.01 in it and
| about to be overdrawn. Each transaction from here on out
| will net you a $35 overdraft fee.
|
| Everyone using a debit card, especially if poor, should
| disable overdraft protection at the bank. The fees will eat
| you alive otherwise.
| baremetal wrote:
| be careful I disabled overdraft protection and my bank
| had an additional layer "courtesy pay" that also changed
| an overdraft and they didn't tell me about it. I found
| out the hard way.
| xwdv wrote:
| It does not wreck anymore havoc than lots of separate
| transactions pushing them deeper into debt.
| BoorishBears wrote:
| Stuff like this reminds me of the bubble tech lives in.
|
| There are _a lot_ of people who aren 't on top of their
| finances at all.
|
| For them, a delayed transaction wreaks plenty of havoc
| because they're not keeping track of how much "ghost
| transactions" are affecting the account balance they see.
|
| Now you could argue it's on them for not being on top of
| their finances, but Uber makes _a lot_ of money from these
| people. The largest demographics are 18-24 yr olds, ie
| people who honestly can 't afford overpriced delivery but
| do it anyways.
| youreincorrect wrote:
| I think you live in a bubble if you feel it necessary to
| exaggerate the effects and coddle people who aren't on
| top of their finances.
|
| It's all a fairly pointless discussion because the simple
| solution is to suggest Uber, etc. just make this method
| of charging an optional feature that is easily toggled by
| their customers. Beyond that, it's an uninteresting
| discussion, and I don't care to hear people browbeat each
| other about how Uber is _bad and wrong_ for rolling
| transactions into one because they didn 't consider that
| their customers are mouthbreathing idiots whose entire
| financial world will come collapsing down on them if they
| can't get check their credit card balance for 100%
| accurate realtime information about their current
| financial state. Somehow if someone didn't think of this
| possibility, they are an inconsiderate jerk who "lives"
| in a "bubble."
| xwdv wrote:
| Indeed, im pretty sick and tired of people making excuses
| for others lack of financial planning.
|
| Perhaps seeing a big bill dropped on them all at once for
| their past purchases is the exact wake-up call some
| people need to track their finances.
| BoorishBears wrote:
| If instead of taking uninformed pot shots you took just a
| moment to check, you'd see overdrafts come from a tiny
| slice of customers who get hit by overdrafts over and
| over again.
|
| No one made any excuses for anyone, it was a simple
| statement of fact that batched transactions save a
| marginal cost for the good in question and affect the age
| group that's using them the most.
|
| --
|
| It might even be profitable for them to eat the
| processing fee and call out the fact there are already X
| dollars pending to users who have had at least one NSF in
| the past year as they check out. Why give the bank $20
| out of your most captive customers pockets, to save .03
| cents on payment processing?
|
| There seems to be this weird idea that it can't be
| profitable to do things that help your users.
| BoorishBears wrote:
| There's so much self-indulgent angst oozing out of this
| comment that it's hard to pick out the intended signal
| but I'll try:
|
| - It's not about credit cards, it's mostly debit. It's a
| large driver of the 15 billion dollars in NSF fees banks
| pick up yearly.
|
| - Having 100% up to date information on your money makes
| it easier to not overdraft, the emotional smokescreen
| deployed doesn't change that.
|
| - I don't know anyone with any level of financial
| literacy who would prefer less accurate data on their
| money: so your suggestion for a switch that makes your
| transaction history less accurate is questionable to say
| the least.
|
| Overall you sound insecure about living in a bubble. I
| didn't paint people as jerks for being in a bubble, but I
| rightfully pointed out that you're clearly unfamiliar
| with a challenge in some people's lives.
|
| If self-loathing makes you feel like a jerk for being in
| a bubble I can see how you could misconstrue that.
| SketchySeaBeast wrote:
| If you're watching your credit card to know how much money
| you have left won't the Uber rides not reflect until they
| do a mass bill?
| hoschicz wrote:
| Do they? Only in the US? I ride with Uber in Europe and
| always see the charge from them immediately on my card.
| WastingMyTime89 wrote:
| Most of the processing fees are capped by law in Europe.
| They are far lower (and I mean far - something like six
| times lower) than in the US and the cap is a percentage of
| the transaction so there is little point in bundling.
| mandeepj wrote:
| Boat load of free money right there! Clearly a side benefit of
| operating at scale.
| varispeed wrote:
| I found myself in an interesting predicament. I got given a PS100
| gift card to spend in a well known department store for my
| birthday.
|
| I got this card 3 years ago and I have not used it yet, because I
| found that there is nothing really in that store that is worth
| below PS100 that would compel me to go there or order online and
| items that interest me but are far more expensive, even
| considering the voucher I could buy cheaper elsewhere or even
| find such item used in as new condition.
|
| So while I appreciate such gift, probably if someone scribbled
| PS100 on a piece of paper it would have the same effect to me,
| but they wouldn't have to spend any money.
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