Coronavirus & What It Might Mean For Gift Cards

For the last week or two I’ve wanted to write a post about what coronavirus and what it might mean for gift cards, particularly for those of us that resell gift cards. The thing is, whenever I went to do this, I had a hard time putting my thoughts down because it felt like some of my thoughts and recommendations were contradictory.

Still, I thought it might be helpful to publish something on the matter in case there’s anything I mention that’s helpful in some way, whether that’s considering additional risks (whether to your health or wealth), identifying opportunities or simply doing good in your neighborhood.

Please don’t take any of this as me having a firm position on what will happen. Everything is changing by the day, so who knows what tomorrow might bring, let alone in the coming weeks and months. A month ago I was on Bourbon Street in New Orleans for Mardi Gras, now I’m holed up in Albuquerque for the next few weeks with zero plans for what we’ll be doing next on our road trip, if anything at all.

I’d therefore love to hear your thoughts in the comments below as I’m sure there’s a lot of stuff that I haven’t considered either.

Doing Good

One of the things that’s been mentioned in a few places is that one way to support your local businesses is to buy gift cards if you know you’ll be visiting them in the near future. That gives them an upfront cash injection which could be vital in helping them make it through.

One problem you might encounter is that the places that likely need funds the most – mom and pop restaurants, small coffee shops, barber shops, etc. – might well not have a gift card system in place. If there’s a particular business you’d like to support that doesn’t have gift cards, perhaps chat to them (from a distance 😉 ) about if there’s some kind of system they could put in place to offer something like this – perhaps paper coupons of some kind or something like that.

Alternatively, while they might not offer gift cards, do they have some kind of loyalty program in place? For example, some coffee shops might have a card where you get a free drink after getting the card stamped after 8 visits. If so, they could create a similar card but printed on card of a different color to differentiate it from their current loyalty card. Customers could buy those cards, paying the equivalent of 8 drinks worth upfront. When they visit in the future, the card gets stamped every time they redeem for a free drink. These cards could be slightly discounted to account for the fact that you wouldn’t be getting the free drink after visiting 8 times, or this special card could have 9 stamps to account for that.

Anyway, just a thought for something you could put in place if you own a small business or something you could suggest to a business you want to help.

Redeeming Gift Cards ASAP

OK, so this advice is going to somewhat contradict my advice in the previous section. Buying gift cards for your local business is good, but it does introduce some risk. You’re giving them money upfront with no guarantee that they’ll manage to stay in business long enough for you to redeem the gift card.

It might therefore make sense – at a personal level – to redeem any gift cards you currently hold. We have a bunch of restaurant gift cards we’ve bought at a discount over the last few years that we still haven’t gotten around to redeeming. For example, when the Amex Gold card first got its $10 dining benefit, my wife and I bought several $10 gift cards for Shake Shack and The Cheesecake Factory. We have Ruby Tuesday and Chili’s gift cards bought from Raise, Subway gift cards bought from Google Express when there was an Amex Offer a few years ago, Chipotle gift cards bought with Amazon/Citi ThankYou point offers, etc.

(Funnily enough, literally as I was writing this The Cheesecake Factory told its landlords that it won’t be paying rent on April 1. Looks like we might need to go and redeem our $10 gift cards for some expensive cheesecake.)

I’ve no idea about the fundamentals of all these businesses. Even though most chain restaurants are still serving food via delivery, pick-up and drive thru, I imagine their businesses are still suffering as a lot of people will be cutting discretionary spending and trying to reduce how much they interact with others right now. It would be a shame (again, on a purely personal note) to have the value on these gift cards go to waste, so it could make sense to redeem the balances sooner rather than later in case there is no later for some of these restaurants.

Gift Card Reselling Risks

Gift card reselling always carries risks, but it’s even more risky right now for a number of reasons.

Companies Going Under

Many companies were in a precarious position even before coronavirus hit, so enforced shutdowns aren’t going to help them stay afloat. I can imagine that Sears and GameStop in particular are going to have issues, along with some of the big department stores. If you’re currently holding any low value gift cards for personal use, it might be best to place an online order ASAP.

If you’re holding their gift cards for reselling, it could be worth considering dropping the price you’re selling them for, even if it means you don’t break even/make a profit. Taking a loss of 5-10% is better than having to eat an entire loss if they go under.

Lower Reselling Rates / Less Capacity

Heading into the holidays last year, it was possible to get some great rates when reselling Best Buy gift cards. In the last couple of weeks though, the rates have dropped – if you can even find buyers in the first place.

With far less discretionary spending going on and Amazon not taking new inventory from resellers unless it’s for essential items, a lot less product reselling is taking place which reduces the demand from product resellers for a steady supply of Best Buy gift cards and similar brands.

Longer Sale Times

As a result of the lower reselling rates and capacity, you might be looking at longer sale times than expected if you bought gift cards in recent weeks. If you bought them on a credit card in large enough amounts that you can’t float the costs, you could be looking at paying interest on your credit card(s) which will likely kill any profitability on the deal.

Mitigating Risks

One of the biggest things I’d emphasize with gift card reselling at any time – but particularly at the moment – is to only risk what you can afford to lose. If you have hardly any money in savings, I’d caution against going out and buying $10,000 of GameStop gift cards even if they offered a 20% discount on them in the near future unless you’re able to get immediate repayment when reselling them.

Something else to consider is when your credit card statement closing dates are. This is something that can be good practice anyway depending on your financial position, but even more so at the moment. If there’s a gift card deal that’s worth jumping on, consider paying with a credit card which has just had its statement close. If you do that, you’re affording yourself ~7 weeks of float time. Making a large purchase on a card a day or two before the statement is due to close means you’ll have to repay it in full within ~3 weeks if you don’t want to incur interest charges.

Some people like having all their credit card statements close on the same dates to make it easier to keep track of. That’s certainly not a bad approach if it works for you, but I don’t mind the slight extra work involved of keeping track of when payments are due if it means I have a rolling 7 week float period available across all our cards.

Possible Predictions

I thought I’d make a few predictions for what I think might happen in the world of gift cards in the near future. I have absolutely no certainty that any of these will come true; it’s more a case that I think these are conceivable scenarios.

1) Grocery Stores Offering Both More & Fewer Deals

Over the course of the last week or so, a number of grocery store chains around the country have stopped producing weekly ads. I think this is a good thing as I thought it was weird that they were offering a large discount on some food staples that were quickly going out of stock anyway due to panic buying.

What this means is that we’ll see fewer gift card deals at some grocery stores. For example, H-E-B (a Texan grocery store chain) is usually a great source of profitable gift card deals each week as they normally make several new gift card deals available on Wednesdays via digital coupons. For the last couple of weeks though, they’ve completely eliminated all their digital coupons.

Other chains have yet to follow suit though. Safeway, Albertsons and other stores using the Just For U program have a couple of digital coupons offering 6x Reward Points on gift cards for select food delivery and streaming services. Publix just launched new digital coupons on Happy gift cards, while Kroger and its affiliate stores are even offering bonus fuel points on variable load Visa and Mastercard gift cards and 15% discounts on prepaid phone cards online. So while some doors will close, others will (hopefully) continue to open.

2) Larger Than Normal Discounts / More Widespread Discounts On Some Brands

As mentioned earlier, gift cards can be a great way for companies to get a cash injection. Even offering large discounts can be worthwhile if their alternative option is high interest debt which they’ll have to start paying back straight away.

Companies get to take advantage of some element of breakage by selling gift cards (i.e. gift cards that go unused or are lost, residual amounts going unredeemed, etc.), plus it’s believed that customers spend more when redeeming a gift card than when they pay via other methods.

As a result, it wouldn’t surprise me if we see more companies offering discounts on their gift cards. For particularly desperate companies, we might see larger than normal discounts, or perhaps them offering discounts at a number of different stores and outlets at the same time (e.g. Staples, grocery stores, MyGiftCardsPlus, eGifter, etc.) If that happens, reselling opportunities could be interesting. Larger than normal gift cards might make deals profitable, but a flooded market might make it less so. Add in the risk of holding gift card brands in dire financial straits and we could be in interesting times.

3) More People Interested In Buying Second Hand Gift Cards

With the presumably impending recession, people will be taking much greater care with their household spending. Discretionary spending will be cut, extreme couponing will likely encounter a resurgence, while I expect more and more people will start taking notice of buying second hand gift cards.

During good times, many people aren’t going to even consider the “hassle” of buying a Walmart gift card for 2% off from Raise. When times are tough, any savings they can make become worth the hassle. There will likely be endless articles and TV segments suggesting ways that people can cut their household expenditure, with discounted gift cards probably appearing on many of those lists.

That might therefore increase gift card reselling opportunities, although demand could vary wildly by brand. I’d expect brands like Walmart to be popular, whereas luxury brands (and by luxury I’m referring to non-essential food and household brands) like Nordstrom, Pottery Barn, etc. might see a reduction in demand. That’s not to say that resale rates for “luxury” brands will necessarily drop heavily though. Although demand might be lower, supply will likely lower too to compensate.

Manufactured Spending

Something that might be worth being careful about right now is manufactured spending. With many people finding themselves furloughed or out of a job completely, banks are going to be more apprehensive than normal about large transactions.

Depending on how you MS, this might be a moot point. For example, if your sole method of MS was buying $1,000 Visa gift cards from Simon Mall, that option isn’t available until March 29 and possibly beyond.

If your income has dropped recently and so are looking to MS as a way to help supplement your income, your increased spending could set off a flag at your bank(s). They might consider you a bust out risk (i.e. that you’re going to rack up a ton of debt on your cards with no intention of paying them back) and close your cards out of an abundance of caution. That could put you in an even worse financial position if it means your credit lines remove one of your only safety nets.

In addition to the risk to your accounts, there’s a risk to your health. Throwing a couple of $500 Visa gift cards into your cart while doing a regular grocery shop isn’t putting you at any extra risk. However, making additional trips to the store for the sole purpose of MSing does increase your risk of contracting and/or spreading COVID-19. If you’re then standing in line at Walmart or your grocery store to liquidate your gift cards, you’re only increasing the risk to yourself and others.

As a result, I’d recommend against MSing in this type of way right now. The exception is if you already have a supply of gift cards that you need to liquidate for financial reasons. I almost did a Simon Mall run a couple of weeks ago, but decided against it due to social distancing (this was before they closed all their malls). I’m glad I didn’t do that though, otherwise right now I’d be having to decide whether to sit on them for some time or make trips to Walmart every day.

With reduced travel (and thus reduced redemption of points and miles) right now, it’s simply not worth it.

General Thoughts

Here are a few more random thoughts on gift card-related stuff.

1) Redeeming Points & Miles For Gift Cards

Redeeming points and miles for gift cards is nearly always a terrible option as they provide much less value than you’d get when using them for travel. However, if you’re in a desperate financial position and have a ton of miles and little-to-no income or savings, it could make sense to redeem them for gift cards.

Your time might be running out to do that though. Both Southwest and Best Western have stopped allowing members of their loyalty programs to redeem points for gift cards and merchandise. I imagine they saw an uptick in people doing this and so cut it off so as not to make their own financial positions even more precarious. It’s likely we’ll see more companies with loyalty programs doing the same thing. (Update: As per swg’s comment below, American Airlines recently stopped offering the ability to redeem AAdvantage miles for gift cards too.)

2) Credit Card Signup Bonuses Vs Bonus Categories

I don’t know about you, but I always feel antsy when we’re not working towards the minimum spend requirement on a new card. We’ll meet the minimum spend on my wife’s most recent card in the next couple of weeks, so I want to pull the trigger on at least one or two new cards.

I think we’re going to hold off right now though. In the same way that banks are going to be sensitive to an increase in spending on your existing cards, they’ll probably also be more sensitive than normal to new applications. They might become less approval-happy, or at the very least require human eyes to took a look at your application.

That could put you at risk for account closures depending on how many other cards you have with that bank, your credit limits, spending patterns, MS activity, etc. While I don’t think my wife and I would be in danger of that, I think we’re going to hold off on applying for new cards for at least a month or two.

If you’re thinking the same thing, it’ll be worth putting more focus on which of your cards earn bonuses in which categories, especially if all your household spend normally goes on whatever new card you’re currently working on a minimum spend requirement for. While earning 4x for $1,000 of spend at a grocery store isn’t as great as earning 75,000 miles for that same level of spend, it’s still much better than earning 1x or 2x.

3) Raise

Raise has been running a number of promotions recently. For several days in a row they offered promo codes giving 5% off in certain categories of gift cards, plus they’ve offered 10% cashback through TopCashback a number of times in the last couple of weeks.

On the one hand, that might signal some element of desperation on their part. However, I’m not too concerned for them and am even optimistic for their business model in the coming months. Unlike sites like Cardpool and CardCash, I don’t believe Raise actually buys any gift cards themselves – they’re purely a marketplace in a similar way that eBay works. As a result, if a company like Sears or GameStop goes under, they won’t be sitting on any losses as they’re not the cardholders – it’s their sellers that’ll suffer.

That’s not to say it won’t have some kind of impact on Raise’s bottom line. If some of the resellers using their platform go out of business, they won’t be earning any commission from them. With less discretionary household spending going on, they’ll likely see a decline in the amount of some gift cards being sold.

As mentioned earlier though, buying discounted gift cards will probably become a more widespread activity in society during a recession. That should help maintain their business, with their business model of not buying and selling the gift cards themselves helping isolate them from some of the inherent risks.

Your Thoughts

If you’ve made it to this point, thanks for reading my 3,000 word rambling! I’m curious what you think – do you agree with the points I’ve raised? Are there any ways that I’m wildly wrong? (Definitely a possibility!) Any risks or opportunities I haven’t considered? Let us know in the comments below.