A recent article (Old Gift Cards are in Season, WSJ 10/22/08) in the Wall Street Journal places the blame for gift card breakage partially on consumers shoulders for their bad habit of waiting or forgetting to use their gift cards. While I agree that this behavior is clearly common among consumers, I think it is based on a fundamental misunderstanding by consumers in thinking that their gift cards will continue to hold value indefinitely. Perhaps we just think it would be the reasonable thing to do.

The article also notes a trend where consumers are digging deep looking for old gift cards to use up and how this is good news for retailers. While most retailers wait to book profit on sales from gift cards until they are redeemed, they do eventually benefit from unused gift cards when they claim unused balances as breakage.

However, while retailers may benefit when gift cards are used because they can claim profit, they also benefit from the cash flow that unused gift cards provide them. When older gift cards are used, retailers may be able to book a profit, but they don’t get the cash flow from a non-gift card purchase.