Could This Gift Card Trend Affect Your Small Business?

Remember all those gift cards you bought—or sold—during the pandemic’s early lockdown to help keep small businesses afloat, possibly including yours? 

If they’re still on your business’s books (or still gathering dust in your wallet) you’re not alone: according to CNBC, nearly 50% of Americans are holding onto $21 billion in unused gift cards or store credits, reaching a per-consumer average around $175. This impacts small businesses directly, especially during a period of inflation and decreased consumer spending. 

Gift cards represent a high-value proposition for your customers, whether they’re looking for a flexible gift for a friend or a way to keep your business supported when a desired item or service might not be available. And they’re most popular with millennial and Gen Z shoppers, who are already coveted customers.

While unused gift cards may not seem to have a negative impact on the businesses that sell them—they’ve already been paid for, after all, and for big corporations, they make companies a lot of money in breakage income—they can present a logistical hassle for smaller businesses that offer them. You’ll need a way to track balances and a plan for expiration dates or use-by fees, if applicable (though a 2009 federal law prohibits the expiration of gift cards for five years after activation). And you probably won’t clear the massive breakage income levels that corporations like Starbucks or Walmart do with their gift cards.

Should Your Business Offer Gift Cards?

If your small business doesn’t offer gift cards, should you consider doing so? Most retailers report a net positive for gift cards, as The Hustle reports:

• 75% of people who redeem gift cards end up spending more than the value on their cards.
• Shoppers spend, on average, $59 more than the value of their gift cards.
• Shoppers using gift cards are over twice as likely to pay full price for an item than a customer paying with cash/credit card.
• 34% of shoppers say a gift card prompts them to visit a store they otherwise wouldn’t frequent (possibly yours!).

Gift cards are also an extremely popular gift option, as the flexibility involved allows for a lovely “treat yourself” moment without the hassle of an unwanted-item return. After all, roughly two-thirds of all consumers have purchased at least one gift card.

Not all businesses easily lend themselves to gift card use, however—for every gift card-friendly retail operation like a restaurant or a clothing boutique, there are all sorts of service-oriented or B2B businesses that may not be as “gift-able,” like the offerings from landscapers, construction companies, or wholesalers, among others. 

If this sounds like your small business, you may choose not to bother with gift cards—but loyalty programs and surprise-and-delight marketing opportunities will still keep your customers engaged and enticed. 

Should you make your gift cards expire? Depending on the state you live in, doing so may be illegal—and no matter what, all US businesses have that 5-year protection window. As a result, it’s probably best practice to keep those gift cards active for the life of your business.

However, if your business is located in a state where eventual expiration is allowable and an “end date” sounds desirable to implement, a tracking system that denotes the activation date of a gift card will help you ensure that you don’t accept an expired gift card. And shifting to digital delivery options like email or textable gift cards makes their creation and maintenance even easier.

_{The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.}