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What the Resale Values of Gift Cards Reveal About Retailers' Popularity

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The online market for gift cards speaks volumes about the shops we favor.

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Gift card sales are expected to reach $100 billion in 2012, but after years of being a win-win for retailers, consumers are starting to take back the gift card power, thanks to a highly profitable market: Gift card resale.

There are at least a dozen viable businesses online that have created an entirely new market from simply linking buyers and sellers of unwanted gift cards. At Plastic Jungle, the self-described "largest gift card exchange" on the Web, a person selling a gift card can expect to make "up to 92%" on unwanted gift cards, and save "up to 35%" buying a new card that is valid at one of the more than 400 retailers the site offers. It sounds like a simple business model, but there's far more to the market than one might expect. Ultimately, it's driven by basic economics: Supply and demand. If you're looking for retail market insight at any given point in time, it can also be an unorthodox indicator of who's popular and who's not. Here's an insider's explanation for how this multi-million dollar market works, and what it means to retailers.

As the CEO of the gift card resale market leader Plastic Jungle, Bruce Bower has sold more than $10 million in gift card value since 2010, and explains that his team has developed "a keen understanding of what a consumer will pay for a gift card, and what they'll sell it for." Pricing in the gift card resale market has everything to do with inventory on hand relative to the volume of interested buyers - and it's different at any given point in time, he tells Minyanville. Those selling gift cards that the site can't move easily get a lower buy out offer. Likewise, those selling gift cards that people consistently want, or are more rare in the resale market, get a higher offer to buy from Plastic Jungle. (Hence, the "up to" disclaimer). The cards with a healthy demand like Wal-Mart (WMT), Whole Foods (WFM), and Safeway (SWY) are easy to spot, because they're sold with only a slight discount.

Here's a sample of the discounts available for gift cards from 10 popular retailers the day this story was published:

Safeway: 2% off
Wal-Mart: 2% off
Whole Foods: 3% off
Home Depot (HD): 7% off
iTunes (AAPL): 7% off
Macy's (M): 7% off
Starbucks (SBUX): 7% off
Bed Bath & Beyond (BBBY): 10% off
Barnes & Noble (BKS): 14% off
JC Penney (JCP): 20% off


Gift Appeal
Seasonality and "giftability" is a key factor in gift card demand, regardless of consumer perception or loyalty. Bower offers the example of See's Candies. "It's a good brand, it does well during the holidays... but that's kind of it. It's generally not a personal use brand that people buy for themselves." Other occasions that drive purchases of "giftable brands," like graduation season and Mother's and Father's Day, dictate prices, too. Bower explains that regardless of popularity, certain brands are simply "more giftable" than others. For example, Macy's gift cards tend to be gifted more than those from Target (TGT) or Wal-Mart.

Functionality
Despite the impact of gift-giving on card demand, Bower says that most purchasers in the gift card resale market are actually buying for personal use, and often, to save a few extra bucks on everyday purchases. Gift card market value for this segment is a "function of the range of merchandise, and how many stores a retailer has." Aside from Wal-Mart and Target, top performers include Kroger (KR), Costco (COST), Walgreen's (WAG), Trader Joe's, and various branded gas cards.

Discounting & Product Exclusivity
The degree to which a retailer discounts its product and how widely available the card is drives the gift card resale market, too. For example, Plastic Jungle offers up to 92.4% of the value on an Apple store (not iTunes) gift card. By contrast, a $50 gift card to retailer Anthropologie (URBN) commands just 73.5% of the face value for a person reselling it to Plastic Jungle. Both brands specialize in a unique product line and neither sells goods at cheap prices. But Anthropologie does "red-line" merchandise at season-end, while Apple generally holds prices steady, regardless of new product introductions. As a result, Bower says Apple store gift cards "fly through the system so quickly that customers actually sign up to get email alerts when new Apple store gift cards are available for purchase." Given that Apple doesn't discount products, Plastic Jungle buyers who score an Apple gift card ultimately save a couple percentage points off their eventual purchase at the store. For the same reason, gift cards to luxury retailers like Neiman Marcus also have high-demand.

New product trends also impact gift card resale. Bower recalls that about two years ago, the Plastic Jungle team was initially baffled by an instant and massive demand for Foot Locker (FL) gift cards. They quickly learned the reason: At that time, Foot Locker was the exclusive sales channel for walking shoes that claimed the ability to "tone" a person's backside. Because the new product was pricey and wildly popular, customers were using the gift card resale market as a way to save money.

Amazon's Role in Resale Gift Card Market
While gift card sellers have a choice of payout method, including cash, PayPal, or Amazon.com gift card, Amazon (AMZN) sweetens the deal by adding 5% to the payout amount when the Amazon.com gift card option is chosen. (For example, a seller could increase the amount he or she receives for a $75 gift card to $78.75, by choosing the Amazon gift card redemption option). Bower explains that it's simply a move by the retailer to capitalize on the market and drive more business to its own site.

Twitter: @WellnessOnLess
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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