11 ms·
Starbucks claims $181M in revenue from unused gift cards (2022)
- amir734jj 3y agoBecause the credit we load into account "expires". That's the trick they use to make money.
- rahimnathwani 3y agoFrom 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 3y agoSo how is it revenue? Sounds like a liability
- NullPrefix 3y agoIt 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 3y agoThat'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 3y ago> 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 3y ago> 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-card-revenue/ https://www.leapfin.com/blog/how-to-properly-recognize-gift-... [2] https://www.bakertilly.com/insights/balancing-act-how-account-restaurant-gift-cards https://www.bakertilly.com/insights/balancing-act-how-accoun...
- mrguyorama 3y agoCompanies 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 3y ago> 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 3y agoI 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.
- nly 3y agoThe problem is if someone gives me cash I just put it in to my bank account with all my other cash and it just gets spent on typical living expenses. Nothing I can label as a gift comes out of it.
- NoZebra120vClip 3y agoI'm sort of offended by this because I do actually think about gift cards when I give them. I deeply consider the value and likelihood that the recipient will patronize the business and appreciate the card. If I do not know their preferences, then I will instead obtain a Visa gift card that spends anywhere, like cash. I don't think it's a crime to give a gas-station card to someone who drives a lot, or a popular restaurant to someone who enjoys eating out, or a Google Play card to someone who owns an Android phone.
- johngalt_ 3y agoWhile the card is not used they can invest the money and the interest earned is a financial revenue.
- rahimnathwani 3y agoThe 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.
- gffrd 3y agoWhat a nice little interest-free loan for them!
- papercrane 3y agoThe 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.
- gffrd 3y agoRight, I guess it's really "nice little effortless profit!" This is why gift cards / loyalty balances are just crazy to me. For a little convenience, you turn money into feudal coinage that only ever goes down in value: you see no interest, no adjustment for inflation. $100 on a gift card today is $97 (and probably less!) a year from now, ignoring completely the benefit the financial upside to the company for it. Now I'm all worked up …
- popotamonga 3y agoIn 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)
- benburleson 3y agoThat seems...sleazy.
- triceratops 3y agoSerious question: what should a business owner do? Track down every gift card buyer and refund their money?
- mrguyorama 3y agoIn 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 3y agoThat seems deeply unethical and, at least in California, illegal. Not something I’d brag about in any case.
- nicenewtemp84 3y agoIs 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.
- 3y ago
- smnrchrds 3y agoIt'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 https://www.alberta.ca/information-about-gift-cards.aspx
- papercrane 3y agoStarbucks 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 3y agoI 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 3y agoNo. Those are unfortunately exempt.
- JohnFen 3y agoEvery 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.
- deleted 3y ago[deleted]
- streptomycin 3y agoThere 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 3y agoTrue, but to be completely honest, that sort of thing is more hassle than it's worth to me.
- ProAm 3y agoGift 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 3y agoIf you're throwing them in the trash, why not give them out whenever you're expected to tip?
- ProAm 3y agoIts just convenience. Its not worth it to lug them around and try to remember you have one.
- ZooCow 3y agoIt'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 3y agoHighway tolls in France have been doing it for something like 20 years.
- capableweb 3y agoYeah, but not in the US so obviously it doesn't count as true innovation.
- deleted 3y ago[deleted]
- rottencupcakes 3y agoBelieve it or not, Fastrak has been doing this for tolls in the Bay Area for something like 20 years.
- rcme 3y agoE-ZPass, which does tolling in the north east, is 36 years old.
- hondo77 3y agoThe iTunes Store turns 20 in two days.
- cuteboy19 3y agoThe concept of weekly monthly settlement is ancient. Banks have been doing it for centuries
- 3y ago
- timgedenk 3y agogift cards also work insanely well in the software business, people are always searching for gifts, use this chance guys
- forgotusername6 3y agoI once had a gift card that had a management fee in the small print. By the time I remembered it the £10 had all been eaten by the 40p a month fee.
- superzamp 3y agoYikes that seems insane, do you remember which vendor it was?
- forgotusername6 3y agoI think it was a love2shop card. One of those that is valid at multiple retailers.
- mrguyorama 3y agoThis is no longer allowed in most of the US.
- deleted 3y ago[deleted]
- black_13 3y ago[dead]
- 97-109-107 3y agoHow 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-know-about-gift-cards/ https://www.bitsaboutmoney.com/archive/more-than-you-want-to...)
- LightBug1 3y agoI'm sure this was an entirely unplanned enterprise...
- mandeepj 3y agoBoat load of free money right there! Clearly a side benefit of operating at scale.
- varispeed 3y agoI found myself in an interesting predicament. I got given a £100 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 £100 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 £100 on a piece of paper it would have the same effect to me, but they wouldn't have to spend any money.
- tamaharbor 3y agoI 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.
- osigurdson 3y agoGift cards are such an odd concept. Here is my gift: expiring cash that can only be used at one place.
- mirker 3y agoBut it’s more thoughtful. The purchaser thought long and hard about what place the purchasee can use it in.
- supertrope 3y agoConvert your US Dollars to Starbucks Dollars!
- NoZebra120vClip 3y agoThink about it this way: many people derive peace-of-mind from giving a gift whose purpose is known. Now, I can hand someone $20 and hope they don't spend it on booze, drugs, or prostitutes. Or I can hand someone a gift card, knowing they will spend it on Starbucks (not that expensive coffee isn't on a spectrum of vices anyway.) I can't put my finger on it, but as someone who has wholeheartedly embraced a "cashless society" vision, I feel better about gifting people with gift cards instead of cash. I don't know if it's any safer to send them through the mail, but it seems customary to tuck one into a greeting card, so that's how I treat my relatives on special days. I often keep a gas station card on hand, because I don't drive, and it can be real useful to offer a fill-up to someone who gives me a much-needed ride.
- osigurdson 3y ago>> I don't drive Suggest learning how to drive if you can. Being dependent on others isn't great.
- NoZebra120vClip 3y agoI didn't say that I can't drive. And I don't think that you can show me a human being who is not interdependent on others for something. Do you grow all your own food?