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While I certainly don't condone fraud, I find it difficult to feel sorry for the corporations. Starbucks took in $1.3B in gift card sales in the holiday quarter

While I certainly don't condone fraud, I find it difficult to feel sorry for the corporations. Starbucks took in $1.3B in gift card sales in the holiday quarter of 2013(0). This is basically a loan to the company without interest, with which they can basically do what they want, including investing them. The only real concern, for the shopper, is whether the prices of the goods they want to purchase will increase because of the frauds. Not likely, given the competition for items such as pet food. (0) http://www.seattletimes.com/business/starbucks-prepaid-cards-hit-a-record-13b-in-holiday-quarter/ http://www.seattletimes.com/business/starbucks-prepaid-cards...

mikeash 11y ago
Starbucks and these other companies aren't doing anything shady here. Everybody who buys a gift card knows what they're doing and how the cards work. So I don't really understand why you'd even bring this up in this context.
- sithadmin 11y ago
  Calling gift card sales 'basically an interest free loan' is a bad comparison as well. Aside from overhead costs associated with the logistics of running a gift card system, gift card sales are historically a source of confusion and headaches when it comes to financial reporting (due to rules about how revenue can be recognized on paper), which adds another layer of complexity and cost.
  - intopieces 11y ago
    You claim they are a massive headache, yet companies issued $124B of them in 2014. The companies seem to find something good in them. http://www.prnewswire.com/news-releases/2014-gift-card-sales-to-top-124-billion-but-growth-slowing-300007306.html http://www.prnewswire.com/news-releases/2014-gift-card-sales...
    - sithadmin 11y ago
      The good is in the fact that they're a reliable driver of sales. The bad is that this particular method of revenue generation entails a lot of financial gymnastics 'on the books' that other revenue drivers don't typically require.
sithadmin 11y ago
>This is basically a loan to the company without interest, with which they can basically do what they want, including investing them. It's not really that simple (under US accounting practices, anyway). When a gift card is purchased, the value of the card increments a liability on the company's books; Gift card revenues are recognized on redemption of the card for goods, not when the card is purchased. From an accounting perspective, this is somewhat messy, particularly when consumers leave a balance on a card with no intention of spending it.
- rahimnathwani 11y ago
  So it's exactly as simple. Loans also appear as a liability on the balance sheet. The only accounting complication relates to breakage (balances that will never be redeemed), which is free money for the company, so I'm sure no one cries over the accounting work involved.
  - ghshephard 11y ago
    The challenge in places like California, is they don't legally recognize "breakage" or "Dormancy Fees" - so that any company that sells a gift card will have to carry that liability on their books forever, regardless of whether the customer will ever use the card. http://www.dca.ca.gov/publications/legal_guides/s-11.shtml http://www.dca.ca.gov/publications/legal_guides/s-11.shtml
    - rahimnathwani 11y ago
      "so that any company that sells a gift card will have to carry that liability on their books forever" There are at least two separate issues here: 1) Gift cards issued in California cannot usually have an expiry date or dormancy fees, so can be redeemed at any time after issuance, even 1000 years in the future. 2) IFRS 15 requires issuers to estimate breakage (usually based on historical redemption patterns). Once the issuer deems the chance of redemption to be remote, they can immediately recognise the amount as revenue, i.e. DR liabilities and CR revenue. These issues do not conflict. Estimate your breakage balance every quarter. If it's gone up since last time, recognise some additional revenue. If it's gone down, then reverse some revenue. These affect your financial reporting, but doesn't affect your dealings with customers. You'd calculate breakage in a similar way to that in which lenders calculate provisions for bad debts. You would do it at a portfolio level (perhaps breaking unredeemed gift cards into buckets based on value, date of issuance, and last activity date).
kawera 11y ago
Without interest but not without cost - selling and redeeming isn't free.
- newjersey 11y ago
  You're right. It is actually better than an interest-free loan, as long as you assume that all goods sold and services rendered return a positive profit. Since gift cards are not usually redeemable for cash, this is a great opportunity. It is also a vote of confidence by the customer and a statement that says "I trust you with $X of my money" and "I find our business valuable and I think I or my proxy will likely come back to spend some or all of this $X in the foreseeable future."
simplicio 11y ago
The "gift cards" in the story aren't that type of gift card. They're store credits given for people returning goods.
LukaAl 11y ago
And so what? Last time I walked in a Starbucks, none made me buy a gift card using a gun. Actually none ever asked me to buy a gift card. The only time I bought one I was willing to buy it. Since when selling to customers something they want is something morally wrong? Because it is an interest free loan? If you think about it the world is full of interest free loans. Tickets for concert? Check Service retainer (e.g: lawyers, accountants)? Check Insurances? Check Online retailers? Check (until they ship the good) Again, what is morally egregious that makes fraud against them sort of a lesser crime?
- intopieces 11y ago
  >Again, what is morally egregious that makes fraud against them sort of a lesser crime? I find nothing objectionable about the sale of gift cards and, as I stated from the start, I do not condone fraud. My response was to this woman's statement: >“I feel really bad now because my purchase of these cards may have contributed to unlawful activities,” Lisa said. “Even though I saved $40+, Petco actually lost money as a result.” I don't feel bad for large corporations, especially in light of how much money they make off of the gift cards they sell and the fact that they are not obligated by any law to hand out the gift cards for unverified returns in the first place. It's a situation they created for themselves and they can fix themselves. I also can't share her concern about 'contributing to unlawful activities'. I consider myself a pretty conscientious individual, but there just isn't any way to know whether the money I spent on gift cards went to a criminal or just someone who got an unwanted gift for their birthday. That level of worrying is beyond sanity.

mikeash 11y ago

Starbucks and these other companies aren't doing anything shady here. Everybody who buys a gift card knows what they're doing and how the cards work. So I don't really understand why you'd even bring this up in this context.

sithadmin 11y ago
Calling gift card sales 'basically an interest free loan' is a bad comparison as well. Aside from overhead costs associated with the logistics of running a gift card system, gift card sales are historically a source of confusion and headaches when it comes to financial reporting (due to rules about how revenue can be recognized on paper), which adds another layer of complexity and cost.
- intopieces 11y ago
  You claim they are a massive headache, yet companies issued $124B of them in 2014. The companies seem to find something good in them. http://www.prnewswire.com/news-releases/2014-gift-card-sales-to-top-124-billion-but-growth-slowing-300007306.html http://www.prnewswire.com/news-releases/2014-gift-card-sales...
  - sithadmin 11y ago
    The good is in the fact that they're a reliable driver of sales. The bad is that this particular method of revenue generation entails a lot of financial gymnastics 'on the books' that other revenue drivers don't typically require.

sithadmin 11y ago

>This is basically a loan to the company without interest, with which they can basically do what they want, including investing them. It's not really that simple (under US accounting practices, anyway). When a gift card is purchased, the value of the card increments a liability on the company's books; Gift card revenues are recognized on redemption of the card for goods, not when the card is purchased. From an accounting perspective, this is somewhat messy, particularly when consumers leave a balance on a card with no intention of spending it.

rahimnathwani 11y ago
So it's exactly as simple. Loans also appear as a liability on the balance sheet. The only accounting complication relates to breakage (balances that will never be redeemed), which is free money for the company, so I'm sure no one cries over the accounting work involved.
- ghshephard 11y ago
  The challenge in places like California, is they don't legally recognize "breakage" or "Dormancy Fees" - so that any company that sells a gift card will have to carry that liability on their books forever, regardless of whether the customer will ever use the card. http://www.dca.ca.gov/publications/legal_guides/s-11.shtml http://www.dca.ca.gov/publications/legal_guides/s-11.shtml
  - rahimnathwani 11y ago
    "so that any company that sells a gift card will have to carry that liability on their books forever" There are at least two separate issues here: 1) Gift cards issued in California cannot usually have an expiry date or dormancy fees, so can be redeemed at any time after issuance, even 1000 years in the future. 2) IFRS 15 requires issuers to estimate breakage (usually based on historical redemption patterns). Once the issuer deems the chance of redemption to be remote, they can immediately recognise the amount as revenue, i.e. DR liabilities and CR revenue. These issues do not conflict. Estimate your breakage balance every quarter. If it's gone up since last time, recognise some additional revenue. If it's gone down, then reverse some revenue. These affect your financial reporting, but doesn't affect your dealings with customers. You'd calculate breakage in a similar way to that in which lenders calculate provisions for bad debts. You would do it at a portfolio level (perhaps breaking unredeemed gift cards into buckets based on value, date of issuance, and last activity date).

kawera 11y ago

Without interest but not without cost - selling and redeeming isn't free.

newjersey 11y ago
You're right. It is actually better than an interest-free loan, as long as you assume that all goods sold and services rendered return a positive profit. Since gift cards are not usually redeemable for cash, this is a great opportunity. It is also a vote of confidence by the customer and a statement that says "I trust you with $X of my money" and "I find our business valuable and I think I or my proxy will likely come back to spend some or all of this $X in the foreseeable future."

simplicio 11y ago

The "gift cards" in the story aren't that type of gift card. They're store credits given for people returning goods.

LukaAl 11y ago

And so what? Last time I walked in a Starbucks, none made me buy a gift card using a gun. Actually none ever asked me to buy a gift card. The only time I bought one I was willing to buy it. Since when selling to customers something they want is something morally wrong? Because it is an interest free loan? If you think about it the world is full of interest free loans. Tickets for concert? Check Service retainer (e.g: lawyers, accountants)? Check Insurances? Check Online retailers? Check (until they ship the good) Again, what is morally egregious that makes fraud against them sort of a lesser crime?

intopieces 11y ago
>Again, what is morally egregious that makes fraud against them sort of a lesser crime? I find nothing objectionable about the sale of gift cards and, as I stated from the start, I do not condone fraud. My response was to this woman's statement: >“I feel really bad now because my purchase of these cards may have contributed to unlawful activities,” Lisa said. “Even though I saved $40+, Petco actually lost money as a result.” I don't feel bad for large corporations, especially in light of how much money they make off of the gift cards they sell and the fact that they are not obligated by any law to hand out the gift cards for unverified returns in the first place. It's a situation they created for themselves and they can fix themselves. I also can't share her concern about 'contributing to unlawful activities'. I consider myself a pretty conscientious individual, but there just isn't any way to know whether the money I spent on gift cards went to a criminal or just someone who got an unwanted gift for their birthday. That level of worrying is beyond sanity.