the number one selling point to retailers was that some significant percentage of cards are never redeemed at all.
That’s not a good thing though. Companies can’t recognize the money as “income” until it’s spent (until the gift card money is used). Until it’s income it can’t be paid as dividends to investors. It’s just stuck in a bank account gathering dust.
That makes the company look more sluggish. Its “working capital” has increased but income doesn’t go up. So the stats look bad. No, the interest from the money sitting in the bank isn’t worth it. Starbucks isn’t a bank and its investors expect more.
Nope, the money is counted as income straight away. Think about the process: person gives cash for gift card. Merchant now had the money and a promise to give that amount of inventory at a future date. Some of those promises are never acted upon, in which case merchant has the gift card money AND the merch which they can also sell.
Why would you comment on something you know nothing about?
Basic gift card revenue recognition
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.
This is a good read. And also looks like it does mentioned unredeemed gc balance can be (partially) considered as breakage income? ( I don’t know anything about accounting, just want to point this out)
You should read that article carefully though. They even outline why this is a money maker later:
You might be wondering, how did I get $1650 in total revenue from a $1500 sale? Well, it’s true, because you were able to take 10% of the gift card in breakage income, and on an individual order/customer it can look funny, but on the whole, with your P&L, it’ll be offset by another gift card purchase not being used and money that was “indefinitely deferred!”
So, uhhh, I guess I’d ask, why would you comment on something about which you know nothing?
That’s not a good thing though. Companies can’t recognize the money as “income” until it’s spent (until the gift card money is used). Until it’s income it can’t be paid as dividends to investors. It’s just stuck in a bank account gathering dust.
That makes the company look more sluggish. Its “working capital” has increased but income doesn’t go up. So the stats look bad. No, the interest from the money sitting in the bank isn’t worth it. Starbucks isn’t a bank and its investors expect more.
Nope, the money is counted as income straight away. Think about the process: person gives cash for gift card. Merchant now had the money and a promise to give that amount of inventory at a future date. Some of those promises are never acted upon, in which case merchant has the gift card money AND the merch which they can also sell.
Why would you comment on something you know nothing about?
https://blog.leapfin.com/how-to-properly-recognize-gift-card-revenue
This is a good read. And also looks like it does mentioned unredeemed gc balance can be (partially) considered as breakage income? ( I don’t know anything about accounting, just want to point this out)
Ha, completely forgot about this.
You should read that article carefully though. They even outline why this is a money maker later:
So, uhhh, I guess I’d ask, why would you comment on something about which you know nothing?