Once upon a time, people gave gifts. For holidays, birthdays, and special occasions, your friends and family would buy you a necktie or transistor radio, a necklace or a crock-pot. The problem was that no one knew your taste in neckties or whether three crock-pots were already languishing in your cupboard. This situation resulted in many exchanged gifts. For the vendor, this meant a loss of profit, due to the manpower needed to handle the exchanges. Furthermore, the returned merchandise was often not in pristine condition or was poorly re-packaged, creating a product that could no longer be sold as grade-A. On December 26th, the stores had to deal with long return lines and lost profits.
One could always give a gift certificate, of course, which allowed the recipient to buy what he or she preferred. It was a good deal for the stores, as it meant no return on that transaction, no ruined merchandise or repackaging, and one more little goodie: slippage, from the word “slip,” as in “to fall by the side.” It refers to the fact that if the gift certificate was not redeemed, the store got free money!
My impression is that gift certificates were never a huge market, because many people felt they were impersonal and did not represent the caring that the giver wanted to convey. Somewhere along the way, however, the etiquette changed. With the help of computer technology, the old-time gift certificates evolved into “gift cards,” which solved problems for the giver and recipient and thus became very popular. You can now purchase these for literally hundreds of popular chain stores. Gift cards have become a $130 billion industry!
The Secondary Market
What this article is about, however, is the entire sub-industry that was created by gift cards – in the resale of unwanted gift cards. Yes, folks, people are selling hundreds of millions a year flipping the slipped gift cards. What a business!
Here’s how it works: Let’s say someone gives you a $100 gift card to Home Depot, but you do not want it. You go online and sell it to one of these card vendors at a 15% discount. You get 85 bucks in your pocket and are happy. The card vendor then sells the card online for $95, for a profit of $10. Or you need to spend $1,000 at Home Depot for a home project. You go online and buy $1,000 worth of cards for $950. You just saved $50.
By way of analogy, imagine a casino with magical slot machines, where you always win. You put in $95 and out comes $100 – guaranteed. Now that would be quite a popular casino. Well folks, it is going on big-time via used gift cards.
There are numerous sellers of gift cards, but the big three are Cardpool, Raise, and CardCash (out of – you guessed it – Lakewood, New Jersey). You go to the website and search for vendors, where all the cards available for that vendor are listed. Some have face values for small amounts, such as $20, and others for much larger amounts, such as $500.
You can also see the discount rate for that vendor. A store in greater demand sells at a smaller discount. Target, for example, might have a discount rate of 5%, meaning that you would pay $95 for a $100 card. Macy’s cards might sell for a 7% discount, or $93 for a $100 card. The discounts fluctuate based upon supply and demand, just like other kinds of merchandise. If demand for a card goes up, the discount will get smaller. In the above example, it means that more people want to go to Target than to Macy’s. Naturally, Wal-Mart sells for the smallest discount due to the great demand.
Answering Your Questions
Is there a risk? I deal mostly with CardCash, and they guarantee the face value of their cards for 45 days after purchase. Although gift cards never expire, your secret card number could be stolen and used by others. For example, someone may hack into your computer or a business’ computer system and retrieve the gift card numbers. This happened to me on a Zappos card, and Zappos refunded me the money when they determined that my number had indeed been stolen. (I was lucky that the thief was sloppy. He bought a million dollars worth of shoes, using my number among many others.) In a rare occurrence, a card was never good to begin with. In either case, CardCash will refund your money within the 45 days. After that, you are taking a risk.
What are the discounts? As I write, I can buy cards for the following discounts: AutoZone, 24%; Bed Bath and Beyond, 7.4%; BP, 1%, Coffee Bean (like Starbucks but with a hechsher), 17.3%; Dunkin’ Donuts, 7.75%; Home Depot, 5%; Joseph A. Bank, 15.6%; and LL Bean, 13.75%.
Are these physical cards? What do you actually receive? Gift cards can be physical or online cards. The website tells you which one a particular card is. A physical card is mailed to you. An online card is sent via email, usually a few minutes after your purchase. The card is in the form of a PDF attachment. It looks exactly like a gift card, and you can print it or scan it. CardCash also has an app with a wallet, so that you can store your card on your smart phone.
Yes, folks, it is that simple. You now take your gift card to the store and use it as cash. If you are buying online, you just type in the barcode number. I recently bought a $100 computer monitor from Best Buy with a gift card priced at 5%. That means I paid $95 for a $100 gift card, saving $5 on the monitor. And it took me only one minute.
How do you keep track of what you own? I strongly recommend keeping a spreadsheet of cards you have bought. Have columns for a) date of purchase; b) name of vendor; c) face value; d) percent of discount; e) discount in dollars; f) actual amount paid; g) date used; and h) amount spent (if you did not spend the whole amount). If you do not use a spreadsheet, you run the risk of forgetting what cards you own (and wasting more money than you saved).
This all sounds very complicated. Is it worth it? Yes, a small amount of learning today will result in a lifetime of savings.
The Double-Bubble Strategy
Sometimes, you can score multiple discounts. For instance, instead of paying the credit price at the gas pump, you can get the lower cash price when you use a gift card, giving you additional savings. (The 45-day limit on the card guarantee makes gift cards ideal for gas and other items you consume regularly.)
Like other merchants, the gift card companies sometimes have sales, where you receive greater discounts on certain cards for a few days. I saw a sale on Macy’s cards, which I purchased at a 15% discount, because I had my eye on a suit at Macy’s. The hard part was waiting for the big price drop on the suit. What if it took longer than 45 days? CardCash would no longer be required to make good. I took the chance, and it worked out. But Macy’s would probably make good if you could prove that the card was stolen.
This game can easily save you $1,000-plus per year for doing very little. This is another example of spending a little time to learn some online tricks that will save you a lot of money.