Break it, don’t shake it…
Last June, Home Depot (HD) made news by reporting $43 million in income from "gift card breakage", which in non-accounting speak means income from gift cards that were purchased, but which were never redeemed. Home Depot’s disclosure, prompted, no doubt by additional rules on how to count unredeemed gift cards, started a mini-boomlet of other companies disclosing their income from gift card breakage.
But buried in the K that Home Depot filed late yesterday was the fact that for the full year, the number for gift card breakage was actually $52 million. Though the company warns repeatedly throughout the K that the $52 million is essentially a one-time bonus because it is accounting for unspent gift cards since the program was launched back in the late 1990s, it does leave one wondering how much this will contribute to Home Depot going forward not to mention what the impact will be on dozens of other retailers. After all, those gift cards are ubiquitous and they’re very hard to pass up when you’re desperately looking for something — anything — to buy for your brother-in-law.
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 3 Comments » |
March 30th, 2006 at 6:45 pm
Gain on extinguishment of gift cards, is a legitamate source of income. I wonder if agressive policies for retiring gift cards may annoy customers, who expect that gift cards be permanent similar to gift certificates. Most retailers will honor expired gift certificates as a service to customers.
March 31st, 2006 at 8:55 am
An adjunct question might address “mail-in rebates” promised by merchants and manufacturers then summarily disallowed by fulfillment contractors for any number of bogus reasons until the customer cries, “uncle.”
Are such promised rebates accounted for by financial reporting?
April 16th, 2006 at 11:48 am
Rebates are even more sinister than gift cards. I doubt that there are many consumers out there that can’t tell a story or two about their nightmarish experiences with the likes of HP and Young America (the infamous fulfillment contractor).
Put me on the list for a class action suit.