Gift cards look pretty harmless.
Someone gives a retailer $100.
The retailer gives them a card worth $100.
Eventually, someone comes back and spends the $100.
It looks like the same money just moving around in a slightly more annoying form.
But from the retailer’s side, a gift card is much better than handing someone $100 in cash.
The money comes in before the product goes out.
The person spending it has to come back to that business.
They might spend more than the card is worth.
And sometimes, they never spend all of it.
That is a pretty good trade.
The retailer gets paid first
Say you buy someone a $100 gift card in August.
The retailer gets your $100 immediately.
But it might not have to hand over $100 worth of product until September, December or even next year.
Until the card gets used, the retailer is holding the cash.
It cannot just treat the entire $100 as sales revenue straight away. Accounting rules generally require the amount to sit as a liability until the customer actually redeems the card.
But the cash itself has already arrived.
Starbucks is a ridiculous example of how big this can become.
At the end of its 2025 financial year, Starbucks was carrying about US$1.75 billion in deferred revenue connected with stored-value cards and its loyalty program. During the year, more than US$15 billion was added through card activations, reloads and loyalty activity.
That is a lot of customer money moving through Starbucks before the corresponding coffees are necessarily handed over.
For most businesses, gift cards obviously operate at a much smaller scale.
The principle is the same.
Cash now.
Product later.
And the money has to come back
Give someone $100 in cash and they can spend it anywhere.
Give them a $100 JB Hi-Fi gift card and there is really only one place that money is going.
The retailer has already secured a future customer.
That is what makes gift cards different from a normal discount.
A 10% discount gives someone a reason to choose you.
A gift card has already moved the money into your ecosystem.
Now the customer has to decide what they want from you.
And there is a decent chance that what they want does not cost exactly $100.
The $100 gift card does not always create a $100 sale
This is probably the bit most people have experienced themselves.
You have a $100 gift card.
The thing you want costs $129.
You are probably not walking away because you need to contribute another $29 yourself.
You just pay the difference.
Research published by the Australian Gift Card Association in 2025 found that 47% of gift card users spent beyond the value of the card, with those customers spending an average of 36% more than its face value.
So a $100 gift card can become the reason for a purchase worth considerably more than $100.
That does not happen every time.
Some people will spend almost exactly the balance. Some will spend less and leave a few dollars sitting there.
But the gift card has changed the way the purchase feels.
You are not deciding whether a $129 item is worth $129 anymore.
You already have $100 sitting there.
Now it feels like the decision is whether the item is worth another $29.
Same product.
Very different decision.
Then there is the money nobody spends
This has an actual accounting name.
Breakage.
Some gift cards are lost, forgotten about or left with tiny balances that nobody bothers using.
The retailer has already received the cash, but no product is ever handed over for that portion.
Starbucks recognised about US$222 million of breakage revenue from stored-value cards in 2025 across its company-operated and licensed store businesses.
That does not mean Starbucks waits for someone to lose a gift card and immediately books the balance as profit.
It estimates expected non-redemption using historical customer behaviour and recognises that breakage over time, subject to the relevant accounting and unclaimed-property rules.
But the basic outcome is pretty strange.
Someone gave the business money.
The business never had to give them anything for part of it.
Gift cards are one of the few products where a customer not using what they paid for can eventually become revenue.
There is an obvious limit
A retailer should not want everyone forgetting their gift cards.
If gift cards became known as something people buy and never use, they would become a pretty terrible gift.
Most of the value still comes from people actually redeeming them.
They bring someone into the store, direct spending back towards the retailer and can turn into a larger purchase once the customer is there.
Breakage is really the bonus sitting around the edges.
The much bigger advantage is that the retailer has already won the spending decision before the person receiving the gift has even decided what they want.
Cash does not do any of this
This is what I like about gift cards.
From the customer’s side, $100 on a gift card feels pretty close to $100.
From the retailer’s side, they are completely different.
Cash can leave.
A gift card cannot.
The retailer gets the money upfront, gets another customer through the door, has a chance of turning $100 into a bigger sale and may never have to redeem every dollar.
That is why retailers are so happy to sell you money with their logo printed on it.
Sources
Primary company reporting and industry research used for the factual claims in this piece. Links checked 23 August 2026.