Gift cards are a subsidy from forgetful people to a business. Industry research also shows that people prefer to receive cash as a gift, but prefer to GIVE gift cards, because they are marketed as a "more thoughtful" gift, as if putting a brand name on some cash is thoughtful. Gift cards are an exclusively selfish gift.
That's actually fascinating. I would never give a gift card as an actual gift to people, because that strikes me as being lazier and less thoughtful than just giving them cash.
Our sales pitch to companies is also about treating gift cards as a marketing tool, mainly by giving away gift cards for certain purchases during sales. For example, IKEA once had a promotion where they would give you a ten dollar giftcard for every one hundred dollars of gift cards you bought. Unlike most companies pushing one of these promotions, they chose not to set an upper limit. The result was hilarious and predictable.
I don't think it's a crime to give a gas-station card to someone who drives a lot, or a popular restaurant to someone who enjoys eating out, or a Google Play card to someone who owns an Android phone.
I initially upvoted your besieged comment because that seemed to make sense, and well, it was the actual title of the piece (Starbucks Claims $181M in Revenue From Unused Gift Cards and Loyalty Credits) and appeared to be quite unambiguous in the article ("Starbucks reportedly claimed $181 million in revenue from money on gift cards and loyalty accounts that customers didn’t spend in fiscal year 2021 — a figure that amounted to about 1% of its sales and 4.3% of its net income during the year.").
However, following a twinge of remorse and uncertainty after downvoting rahimnathwani's reply, a quick search revealed that he is correct:
How to Properly Recognize Gift Card Revenue[1]: "Companies cannot recognize revenue upon the initial sale of a gift card because of a key revenue recognition principle that states that revenue is recognized when or as an entity satisfies a performance obligation by transferring a promised good or service to a customer."
Balancing act: how to account for your restaurant gift cards[2]: "Gift card purchases are generally classified as a deferred revenue liability. The cash received from the sale is paid upfront but does not qualify for revenue recognition as no goods or services have been exchanged. Gift card purchases are recorded as deferred revenue and subsequently recognized as revenue as the gift card is redeemed in the future."
Happily the window was still open to undown, but the experience was a great lesson in not racing to judgement or downvoting.
[1] https://www.leapfin.com/blog/how-to-properly-recognize-gift-...
[2] https://www.bakertilly.com/insights/balancing-act-how-accoun...
The latter calculation is likely an aggregate across all cards, not based on a per-card level prediction.
Breakage refers to the portion of gift card balances that remains unspent by customers, which is eventually recognized as revenue by the issuing company. It is calculated based on historical redemption patterns and the probability that a gift card will never be used. The recognition of breakage revenue, however, doesn't affect a customer's ability to use an unexpired gift card. The card's value remains intact and can still be redeemed for goods or services, regardless of the breakage revenue recognition by the company.
You've described accrual accounting. I believe publicly traded companies (including Starbucks specifically) are held to GAAP which includes accrual accounting; but private businesses can choose between accrual accounting and cash accounting (but, afaik, you can't switch willy-nilly).
