Stores make money from gift cards in several ways:
1. Initial Sale of Gift Cards: When a customer purchases a gift card, the store receives immediate revenue. This is income that does not require the store to provide any goods or services at that time.
2. Breakage: Many gift cards go unused or are only partially used. When a customer fails to redeem the full value of a gift card or forgets about it altogether, the store keeps the remaining balance, which is often referred to as “breakage.” This unclaimed cash adds to the store’s profits.
3. Increased Customer Spending: Gift cards often encourage customers to spend more than the card’s value when they redeem it. For example, someone might use a $50 gift card but end up spending $70, leading to additional sales for the store.
4. Attracting New Customers: Gift cards can bring in new customers who may not have shopped at the store otherwise. Once they visit the store to use their gift card, they may discover products they like and return in the future.
5. Cash Flow: The sale of gift cards provides immediate cash flow, which can be beneficial for managing operations and investing in inventory, marketing, or other business needs.
6. Minimal Cost of Goods Sold: When a gift card is sold, the store has not yet incurred the cost of providing goods or services, allowing for higher margins until the card is redeemed.
7. Promotional Opportunities: Stores can use gift cards as part of promotional strategies, such as offering discounts on future purchases or bundling them with other products, which can help to drive overall sales.
By leveraging these strategies, stores can effectively turn gift cards into a profitable revenue stream.
