SERIOUS MONEY
December 30, 2007 — Savvy retailers are making the $35 billion holiday gift card business even more profitable.
They have set up separate gift card subsidiaries in states that allow them to keep the unredeemed balances from long unused cards - which can total 10 percent of all gift card purchases, or a staggering $3.5 billion this holiday season.
Many states, like New York, take possession of the balances of dormant gift cards - called breakage in retail circles - under laws that govern abandoned property like dormant bank accounts and checks.
At Richfield, Minn.-based Best Buy, the electronics retailer, profits last year were goosed by $19 million in breakage.
That healthy figure is partly a result of the chain’s shrewd move to establish its gift card operation in Virginia, which has a more retailer-friendly law regarding the growing booty of unredeemed gift card balances.
The companies’ gain is a loss for taxpayers.
These separate gift card units - known among industry insiders as “giftcos” - have helped thwart states like New York who have sought gift-card money to boost their coffers.
New York takes possession of unredeemed balances on gift cards inactive for 5 years. Other states’ possession laws carry varying dormancy periods.
New York and other states also redistribute breakage to consumers who can prove they’re eligible for funds.
During the most recent fiscal year, New York collected $9.69 million in unused gift-card money, according to Thomas DiNapoli, the state controller.
That may seem like a lot to the average gift-card recipient, but it’s peanuts compared with the total that went unredeemed statewide - a total that could have approached $1 billion, based on an estimate derived from census data and national sales trends.
“Unfortunately, the current laws benefit retailers by allowing them to incorporate their gift-card business in another state,” DiNapoli told The Post. “The best way to avoid this problem en tirely is for consumers to use gift cards within a year of purchase.”
About half the states allow stores to pocket this easy money. In turn, retailers have become shoppers and have scouted out these friendly states as a base for their gift card units.
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