Red Lobster getting pinched over gift card fees

[OS]

Originally posted by: QED
DrPizza... you are strongly discounting the cost of maintaining and servicing gift cards. It is not exactly "free" to Red Lobster to maintain the IT staff and technology infrastructure to do so.

In my current role I am intergrating a gift card servicing system with a point-of-sale system for a Fortune 500 company--- and let me tell you, what they are spending on this project alone easily dwarfs the $1.25 per month that Red Lobster charges for unused gift cards beyond 2 years.

so by your logic, should banks charge people for having savings accounts?

 

[Thraxen]

Originally posted by: mugs

Originally posted by: Toasthead
* Not applicaple in CA where gift cards are considered cash and NEVER expire.

Yes, California is famous for protecting people from their own stupidity.

How would not spending be stupid? I understand why companies would want to deduct after a while given that some cards may never be used, but I don't see why not using cards has anything to do with stupidity.

 

[BigJ]

Originally posted by: OS

Originally posted by: QED
DrPizza... you are strongly discounting the cost of maintaining and servicing gift cards. It is not exactly "free" to Red Lobster to maintain the IT staff and technology infrastructure to do so.

In my current role I am intergrating a gift card servicing system with a point-of-sale system for a Fortune 500 company--- and let me tell you, what they are spending on this project alone easily dwarfs the $1.25 per month that Red Lobster charges for unused gift cards beyond 2 years.

so by your logic, should banks charge people for having savings accounts?

Savings accounts aren't normally as active as checking accounts, which banks do charge for unless certain conditions are met.

 

[BigJ]

Originally posted by: Thraxen

Originally posted by: mugs

Originally posted by: Toasthead
* Not applicaple in CA where gift cards are considered cash and NEVER expire.

Yes, California is famous for protecting people from their own stupidity.

How would not spending be stupid? I understand why companies would want to deduct after a while given that some cards may never be used, but I don't see why not using cards has anything to do with stupidity.

Entering into a contract and not abiding by the terms of that contract because they decided not to read the terms has everything to do with stupidity and lack of responsibility.

 

[Thraxen]

Originally posted by: BigJ
Entering into a contract and not abiding by the terms of that contract because they decided not to read the terms has everything to do with stupidity and lack of responsibility.

Most people with gift cards didn't enter into the contract, they were gifts.

 

[BigJ]

Originally posted by: Thraxen

Originally posted by: BigJ
Entering into a contract and not abiding by the terms of that contract because they decided not to read the terms has everything to do with stupidity and lack of responsibility.

Most people with gift cards didn't enter into the contract, they were gifts.

Then it is the responsibility of the person giving the gift to ensure the recipient knows the terms, and also the responsibility of the recipient to find out such terms regarding the gift.

Don't want to deal with that? Give cash.

 

[crystal]

This, people, is why cashes are still king. If you have trouble finding gifts for me, don't give me gift cards. Give me cashes.

 

[DrPizza]

Originally posted by: BigJ

Originally posted by: OS

Originally posted by: QED
DrPizza... you are strongly discounting the cost of maintaining and servicing gift cards. It is not exactly "free" to Red Lobster to maintain the IT staff and technology infrastructure to do so.

In my current role I am intergrating a gift card servicing system with a point-of-sale system for a Fortune 500 company--- and let me tell you, what they are spending on this project alone easily dwarfs the $1.25 per month that Red Lobster charges for unused gift cards beyond 2 years.

so by your logic, should banks charge people for having savings accounts?

Savings accounts aren't normally as active as checking accounts, which banks do charge for unless certain conditions are met.

About the only condition in a bank is a minimum balance. $500 last I recall at most banks means you're not going to be charged. Also, in the Red Lobster case, or rather the fortune 500 case, I don't believe that the cost of IT to "maintain and service" gift cards is significant on a per card basis, especially when that system is integrated into the rest of their POS.

 

[RadiclDreamer]

Originally posted by: waggy

Originally posted by: I Saw OJ
If you dont use a gift card in 2 and a half years you're problably not gonna ever use it.

while true. i don't think a company should be able to just take it away with "Fee's".

So if they cant make any money off of the system then waht is the point of them bothering with a card program to begin with? 2 years is very generous. Just use the damn thing so they dont have to keep record of it for ever and ever

 

[dullard]

Originally posted by: DrPizza
Also, in the Red Lobster case, or rather the fortune 500 case, I don't believe that the cost of IT to "maintain and service" gift cards is significant on a per card basis, especially when that system is integrated into the rest of their POS.

But you have to realize that probably 99% of cards which are used ARE used within the 2 year period. Thus, you can't look at it per card. You'd have to multiply the cost by ~100 to get the cost per card which isn't used.

The fact is it costs them money to make the card, to set up the account, to keep track of the money, to keep track of the laws in each city/state/country which vary from year to year, to mail the card to you, etc. They make up some of these costs in the form of fees. You are lucky they give you fees, since gift certificates just simply expire and lose all the value instantly.

If you don't like that policy, simply don't purchase a gift card. Or don't accept them as gifts.

 

[torpid]

Originally posted by: BigJ

Originally posted by: OS

Originally posted by: QED
DrPizza... you are strongly discounting the cost of maintaining and servicing gift cards. It is not exactly "free" to Red Lobster to maintain the IT staff and technology infrastructure to do so.

In my current role I am intergrating a gift card servicing system with a point-of-sale system for a Fortune 500 company--- and let me tell you, what they are spending on this project alone easily dwarfs the $1.25 per month that Red Lobster charges for unused gift cards beyond 2 years.

so by your logic, should banks charge people for having savings accounts?

Savings accounts aren't normally as active as checking accounts, which banks do charge for unless certain conditions are met.

Banks rarely charge for personal checking accounts. Almost every bank here in town has a free checking account with no fees.

 

[jamesave]

Originally posted by: mugs

Originally posted by: Toasthead
* Not applicaple in CA where gift cards are considered cash and NEVER expire.

Yes, California is famous for protecting people from their own stupidity.

we are protecting the consumer.

 

[Thraxen]

Originally posted by: dullard
The fact is it costs them money to make the card, to set up the account, to keep track of the money, to keep track of the laws in each city/state/country which vary from year to year, to mail the card to you, etc. They make up some of these costs in the form of fees. You are lucky they give you fees, since gift certificates just simply expire and lose all the value instantly.

If you don't like that policy, simply don't purchase a gift card. Or don't accept them as gifts.

Well, obviously, no one is going to say "Sorry, I can't accept your gift".

But a serious question... how much do you think it costs to keep track of a gift card? I really have no idea. The card itself is going to be super cheap. So what costs are actually involved with storing the value on a computer somewhere? The money itself they get to sit on and earn interest.

 

[Pacemaker]

Originally posted by: DrPizza

Originally posted by: Scarpozzi

Originally posted by: Tsaico

Originally posted by: Toasthead
* Not applicaple in CA where gift cards are considered cash and NEVER expire.

Which create a accounting nightmare. I run the IT side of the stupid gift cards, and while they are great for cash flow, they are horrible to keep track of. When we "collect the money" for the gift card, it must now sit in a bank account (though it is collecting intrest) until used. So while we can always use the intrest as income, the other money is tied up an unusable until the gift card comes back, which as you guys know, is nearly a quarter of them never see the light of day again...

So until recently, the money was losing value, since inflation was greater then intrest for the last couple of years. We can't invest it, because the money needs to stay liquid and trasferrable in a day's notice in case it is needed to purchase the services the hotel guest wants. I think exipration dates should be fine for these stupid things, if you don't use them if you don't use them in a couple of years, they shouldn't be worth anything. I hate gift cards.

Makes sense. I just hate the side from the consumer... Usually the one who holds the gift card isn't actually the person who purchased it. Who knows, maybe someone decides to regift because they don't want to die of E.Coli like some of the patrons at my local RL did a few years ago. They would have the impression that the value on the card is the full amount stated on the front...instead, they may get stuck with a larger bill if the card has lost part of its value. It's not good business practices...they would be better off charging a GC surcharge at the time of the sale to cover the administrative side...but in all honesty, Cash is a better gift because it's valid at all restaurants and it only loses value with inflation.

No, it doesn't make sense. The company is being handed cash in the present for a possible future purchase. An extreme example might point out the ridiculousness of his argument.

Suppose I purchased a $100 gift card today.
Let's say that Red Lobster gets 2.5% interest when it socks away the $100 into a savings account.

I never use the card. On my deathbed, I realize I have a card that's worth $100. No more, no less, the card doesn't collect interest. So, I put the card in my will to go to my grandchild. 90 years later, he does the same thing.

1000 (One Thousand) years later, my great great great great great... grandchild goes to Red Lobster and uses the card. The card is worth $100. Had Red Lobster kept the original $100 in the bank, it would now be worth $687,424,023,116,963. Is Red Lobster out any money by simply putting the amount paid for the card into a savings account? No. Well, I suppose they're out the cost of the piece of plastic... And, of course, I suppose that there's a minor amount of accounting costs in dealing with it; very minor considering the degree to which computers are used, and how they are all lumped together.

Really, I'd love it if people would come up to me and say, "here's $25. Keep it. Stick it in the bank and keep all the interest it earns. I *might* return to get my $25 back.

The reason this is done is because in accounting when you sell someone a job (in this case a gift card) you have not earned the money yet so it is entered as a debit as well as a credit. This reflects on your end of year statements and makes your company look bad. So companies instead make them depreciate after a period of time to get rid of the ones that probably aren't going to be turning up anyway. This way they can get the stuff off the books.

I'm not sure what they do in CA to counter this as I don't live there, but this is what my accounting professor explained.

An example of what I am talking about is located at the bottom of Text

 

[OS]

Originally posted by: dullard

Originally posted by: DrPizza
Also, in the Red Lobster case, or rather the fortune 500 case, I don't believe that the cost of IT to "maintain and service" gift cards is significant on a per card basis, especially when that system is integrated into the rest of their POS.

But you have to realize that probably 99% of cards which are used ARE used within the 2 year period. Thus, you can't look at it per card. You'd have to multiply the cost by ~100 to get the cost per card which isn't used.

The fact is it costs them money to make the card, to set up the account, to keep track of the money, to keep track of the laws in each city/state/country which vary from year to year, to mail the card to you, etc. They make up some of these costs in the form of fees. You are lucky they give you fees, since gift certificates just simply expire and lose all the value instantly.

If you don't like that policy, simply don't purchase a gift card. Or don't accept them as gifts.

you are forgetting that gift cards almost guarantee some amount of profit to the issuing company once they are used. Not to mention that most users must go above the value of the card on purchases to "use up" the gift card.

this is no different from any other aspect of business. They make money on most types of transactions and lose on a few.

But ultimately, almost everyone here saying if you don't like it, don't buy GCs is right. If certain businesses continue these crappy policies, they will piss off enough consumers that companies will lose this additional profit stream/sales channel.

 

[dullard]

Originally posted by: Thraxen
Well, obviously, no one is going to say "Sorry, I can't accept your gift".

Yes, you are saying that. If you take a gift and don't use it for 2+ years, you are implicitly saying you won't accept that gift. Then, over years, they'll give you more and more of these unwanted gift cards. That is pretty much worse than telling the person in the first place that you don't want gift cards.

Just use it, regift it, or don't accept it. Problem solved. What can you possibly gain by keeping this gift card for 1000 years and then attempting to use it?

Originally posted by: OS
you are forgetting that gift cards almost guarantee some amount of profit to the issuing company once they are used. Not to mention that most users must go above the value of the card on purchases to "use up" the gift card.

No, I didn't forget that issue, it is just not an important issue. Whether they profit or not from your purchase is just a smokescreen to cover up the real question of whether it is their right to put conditions on their products.

 

[Thraxen]

Originally posted by: dullard
[No, I don't forget that issue, it is just not an important issue. Whether they profit or not from your purchase is just a smokescreen to cover up the real question of whether it is their right to put conditions on their products.

It's a bit of a stretch to call gift cards "products" though. It's more like a claim on the future acquisition of one of their products. IMO, it's basically the same as cash. The card just ensures that the cash is spent on your products and benefits the card issuer.

 

[QED]

Originally posted by: Thraxen

Originally posted by: dullard
[No, I don't forget that issue, it is just not an important issue. Whether they profit or not from your purchase is just a smokescreen to cover up the real question of whether it is their right to put conditions on their products.

It's a bit of a stretch to call gift cards "products" though. It's more like a claim on the future acquisition of one of their products. IMO, it's basically the same as cash. The card just ensures that the cash is spent on your products and benefits the card issuer.

You can think of it as cash if you want.

But I can tell you from the IT development/infrastructure side of things, a gift card is much more like a credit card than it is cash in the way that it has to be processed and serviced. And that processing and servicing costs money.

And DrPizza-- your example of me giving you $25 in exchange for a promise that I can get that $25 dollars back someday is a bit innaccurate of an example. A more appropriate example would be if 2 million people every year gave you a varying amount of money, and 1.9 million people (not necessarily the same people) came to claim their money from you. You have to pay for a system and a staff to securely manage and service these accounts (including fielding calls from customers, doing balance inquiries, working with police to handle fraud and/or stolen/missing cards). Don't forget the costs to audit the funds and manage the distributions, or the costs of intergration into any existing business systems you might have. Furthermore, for accounting purposes you are not allowed to touch any of the depositied funds EVER.

The question becomes does the meager 2% or so interest you earn on the money sitting there outweigh your servicing, development, and system integration costs? If companies are forced to honor gift cards for now and forever the answer is no.

 

[brandonbull]

Originally posted by: QED

Originally posted by: Thraxen

Originally posted by: dullard
[No, I don't forget that issue, it is just not an important issue. Whether they profit or not from your purchase is just a smokescreen to cover up the real question of whether it is their right to put conditions on their products.

It's a bit of a stretch to call gift cards "products" though. It's more like a claim on the future acquisition of one of their products. IMO, it's basically the same as cash. The card just ensures that the cash is spent on your products and benefits the card issuer.

You can think of it as cash if you want.

But I can tell you from the IT development/infrastructure side of things, a gift card is much more like a credit card than it is cash in the way that it has to be processed and serviced. And that processing and servicing costs money.

And DrPizza-- your example of me giving you $25 in exchange for a promise that I can get that $25 dollars back someday is a bit innaccurate of an example. A more appropriate example would be if 2 million people every year gave you a varying amount of money, and 1.9 million people (not necessarily the same people) came to claim their money from you. You have to pay for a system and a staff to securely manage and service these accounts (including fielding calls from customers, doing balance inquiries, working with police to handle fraud and/or stolen/missing cards). Don't forget the costs to audit the funds and manage the distributions, or the costs of intergration into any existing business systems you might have. Furthermore, for accounting purposes you are not allowed to touch any of the depositied funds EVER.

The question becomes does the meager 2% or so interest you earn on the money sitting there outweigh your servicing, development, and system integration costs? If companies are forced to honor gift cards for now and forever the answer is no.

Sunk costs shouldn't be considered.

 

[QED]

Originally posted by: brandonbull

Originally posted by: QED

Originally posted by: Thraxen

Originally posted by: dullard
[No, I don't forget that issue, it is just not an important issue. Whether they profit or not from your purchase is just a smokescreen to cover up the real question of whether it is their right to put conditions on their products.

It's a bit of a stretch to call gift cards "products" though. It's more like a claim on the future acquisition of one of their products. IMO, it's basically the same as cash. The card just ensures that the cash is spent on your products and benefits the card issuer.

You can think of it as cash if you want.

But I can tell you from the IT development/infrastructure side of things, a gift card is much more like a credit card than it is cash in the way that it has to be processed and serviced. And that processing and servicing costs money.

And DrPizza-- your example of me giving you $25 in exchange for a promise that I can get that $25 dollars back someday is a bit innaccurate of an example. A more appropriate example would be if 2 million people every year gave you a varying amount of money, and 1.9 million people (not necessarily the same people) came to claim their money from you. You have to pay for a system and a staff to securely manage and service these accounts (including fielding calls from customers, doing balance inquiries, working with police to handle fraud and/or stolen/missing cards). Don't forget the costs to audit the funds and manage the distributions, or the costs of intergration into any existing business systems you might have. Furthermore, for accounting purposes you are not allowed to touch any of the depositied funds EVER.

The question becomes does the meager 2% or so interest you earn on the money sitting there outweigh your servicing, development, and system integration costs? If companies are forced to honor gift cards for now and forever the answer is no.

Sunk costs shouldn't be considered.

Hmmm... I'll remember that next time I'm looking to buy a new house. I'll offer the builder $20 for a just-completed home... $10 to pay for the new keys, and $10 profit for him. I mean, I shouldn't have to pay for his sunk costs of labor and materials, right?

:roll:

 

[notfred]

Originally posted by: Tsaico

Originally posted by: Toasthead
* Not applicaple in CA where gift cards are considered cash and NEVER expire.

Which create a accounting nightmare. I run the IT side of the stupid gift cards, and while they are great for cash flow, they are horrible to keep track of. When we "collect the money" for the gift card, it must now sit in a bank account (though it is collecting intrest) until used. So while we can always use the intrest as income, the other money is tied up an unusable until the gift card comes back, which as you guys know, is nearly a quarter of them never see the light of day again...

So until recently, the money was losing value, since inflation was greater then intrest for the last couple of years. We can't invest it, because the money needs to stay liquid and trasferrable in a day's notice in case it is needed to purchase the services the hotel guest wants. I think exipration dates should be fine for these stupid things, if you don't use them if you don't use them in a couple of years, they shouldn't be worth anything. I hate gift cards.

Not the consumer's fault you do your accounting that way. If you don't like gift certificates, don't offer them to your customers.

Gift certificate expiration is fvcking retarded. You give the store cash in exchange for what? cash that can only be spent at one store *AND* loses value over time? That's a ttoal scam.

I like California's policy on gift cards.

 

[Toasthead]

The solution is simple. If the company doesnt want tot deal withthe unbearable hassle of giftcards, then dont offer them...Seems simple to me.

There has to be an enormous amount of overhead put into the deducting dormancy fees too and managing cards that may never get used.

 

[Thraxen]

Originally posted by: QED
Hmmm... I'll remember that next time I'm looking to buy a new house. I'll offer the builder $20 for a just-completed home... $10 to pay for the new keys, and $10 profit for him. I mean, I shouldn't have to pay for his sunk costs of labor and materials, right?

:roll:

Well, I think he means that any large business will have a customer service department with or without gift cards. Same with computer systems. Now whether or not those are enough to cover the additional need added by gift cards is a different question and would likely vary by company.

 

[Mermaidman]

Originally posted by: dullard
...
5) Silly tax laws make the companies pay income tax in the year the gift card is used, not when it is purchased. That is, if you give them $100 today it isn't actually $100 income until the day you use the card which could be 100 years from now. So there is a lot of extra accountant overhead keeping track of when it is bought/used to get the income reported in the correct year. Why can't a company make up this added expense in the form of fees? Or at least, get rid of this silly tax law.

It may not go in the books as income, but the company now has the use of the money. Wouldn't that benefit the company?

In spite of what you said, I believe retailers absolutely love it when customers buy gift cards.

 

[dullard]

Originally posted by: Mermaidman
It may not go in the books as income, but the company now has the use of the money. Wouldn't that benefit the company?

Legally, no they cannot use the money until the gift card is used. The money just sits in an account waiting for the card to be used. Never use the card? Then they never legally get your money.

They get the interest on your money from the account, but not your money.