$41 Billion in Gift Cards Go Unspent

$41 Billion: That is the total amount of money on gift cards that went, or is likely to go, unspent from 2005 to 2011.

Gift cards are becoming an increasingly popular holiday present, but as the market grows in value the question of what happens to money that goes unspent still looms large. Some 80% of respondents to a National Retail Federation survey said they planned to buy gift cards during the 2011 holiday season, while for the fifth year in a row they remain the most requested present with 58% of shoppers saying they’d like to receive a gift card. The market for gift cards is growing along with their popularity. Financial-consulting firm Tower Group estimates that gift-card sales will reach $100 billion in 2011.

Consumers aren’t the only ones who love gift cards. The retail industry also has many reasons to embrace them. Stores can’t count money received from the gift givers who purchase the cards as revenue until they’re redeemed, but this offers a number of benefits. First, it sets up a source of cash flow in the weeks after the holidays as recipients make their way to stores to spend the money on their cards.

The answer to how retailers deal with those “lost” funds isn’t simple, and there are no hard-and-fast rules — either at the federal level of government or through national regulatory accounting principles. The Securities and Exchange Commission allows companies to take unused gift-card money as income once they can reasonably say the card won’t be redeemed, but there’s no set time limit. Best Buy, for example, sets that level at about two years. In fiscal 2011, the electronics company recorded $53 million in income from gift-card “breakage,” or cards that are unlikely ever to be redeemed, up from $43 million a year earlier.