New route for idle gift cards
he primary gift card market involves consumers purchasing gift cards from brick-and-mortar and e-commerce retailers. But a secondary market for gift cards is emerging: Web sites where consumers can buy, sell or swap gift cards.
Those who would dismiss such a market because it is considered "secondary" should think again.
Robert Butler, Chief Executive Officer and founder of St. Louis-based Cardavenue LLC, cited a TowerGroup study that said "10 to 15 percent of gift cards go unused every year. Over $50 billion in gift cards were bought last year. Think of the numbers of unused gift cards just last year. And if you think of the cumulative amounts … there's so much money there."
Boston-based consultancy Mercator Advisory Group estimated that over $64 billion would be loaded onto closed-loop gift cards in 2008, which would make the unused portion of those at least $6 billion annually.
That's a sizable amount of money not being utilized; it's stored cash in plastic form being forgotten in wallets and purses.
Paved with gold
To give consumers and retailers an avenue for getting that money back in circulation, Butler launched Cardavenue.com in November 2004.
"You can do three things on our site," Butler said. "You can buy gift cards at a discount, you can sell your gift cards for whatever the market will bear, or you can trade, and most people trade."
Consumers list their gift cards either for sale or trade. When consumers trade cards, they post their cards online and provide a wish list of what they would like to trade their cards for: a gift card purchased at the Gap for one from Starbucks, for example. When site users find cards they want, they make offers with one or more cards of their own, or a combination of cards and cash.
"If you add a card to our trade site, we total it at the bottom," Butler said. "It's your wallet, so you can add a $100 card, a $50 card, a $2 card, a $3 card, and you have $155 in total. You can trade that total or any part thereof. And that's what people do. We see people trade $6 cards, $8.50 cards, things like that. It's great."
Once the trade is approved by Cardavenue, a notification is sent out to the participants, and the cards are swapped through the mail. Transactions are only processed through PayPal accounts. To prevent fraud - which Butler said is rare on the site - Cardavenue covers each transaction up to $150.
If cards get lost in the mail, or the cards are not what consumers expected, Cardavenue works with consumers to resolve the problems, Butler said.
Cardavenue makes profit off the transactions. "There is no charge to list," Butler said. "But if you sell a card, [Cardavenue gets] 3.9 percent of the value on the card, plus a 50 cent transaction [fee]. And if you trade it, it's for the face value. If you buy it, there's no charge."
Butler has seen an increase in the activity on the Web site. "I think it's a combination of individuals realizing that now there's an alternative for [unused] gift cards," Butler said. "And, obviously, with the economy the way it is, people are realizing that $600 in gift cards is $600."
Easy Street
Butler sees Cardavenue as both an advocate for retailers as well as consumers. Retailers should "get on the ball about getting consumers to redeem those gift cards," he said. "I know they're sitting on money, but if you talk to Target, if you talk to any of these big corporations, the positives they get when somebody uses a gift card, it more than outweighs the fact that they [the businesses] can sit on that cash.
"If retailers just focused on redeeming the gift cards that are outstanding, they'd end up having a good year. I think that's how much money is out there."
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.