how do shops make money reselling gift cards?

Question

Surely someone is going to loose money or not make any money as the company with gift cards ( like microsoft )would loose money selling it discounted to the shop (like Tesco), and there would be no point the shop selling it for no profit. How does this work ?

In: Economics

Answer 1

I read that millions across the world go unredeemed every year. So that is hard profit for the stores

Answer 2

The selling store gets a commission that’s a percent of face value… say 10%. The issuing store views that cost as a marketing expense to acquire a customer, just as they’d view a TV ad, Sunday paper insert, promo codes, etc. costs.

Answer 3

Shops usually get a small percentage of the gift card sold as payment for their service. Say, if they sell a $100 gift card, they get to keep $2 and $98 goes to the gift card business.

It makes sense for the retailer, as there is almost no cost associated with selling the card, so it is almost pure profit (albeit small). It also make sense for the company offering the cards, as I would rather lose $2 of my profit on a sure-thing $100 transaction than have that transaction be less likely.

Answer 4

In addition to what’s already been stated, some stores (like Sam’s Club, for example) will sell a gift card for less than the dollar value on the card. So, for example, you can get a $50 gift card redeemable at Texas Roadhouse for $47.50.

In this case, Sam’s pocket’s a small percentage of the sale (let’s say 5% or about $2.37) and the rest goes to Texas Roadhouse.

It seems like Texas Roadhouse lost money, right? You get $50 worth of food and they only end up getting about $45.

But, keep in mind that just getting you in the door means they made money. I’m not exactly sure what their profit margin is on $50 worth of food, but let’s say it only cost them $30 between the cost of the actual items you purchased and the overhead costs of having you in the restaurant at that time. That means they profited $15. They might have profited $20 if you were going into the restaurant anyway, but if you weren’t that $15 is $15 they would have otherwise not made.