How Buying A Gift Card Can Help Keep A Small Business Afloat
Many customers are turning to gift cards to support small businesses. Normally, gift cards are a bad deal. But right now, that is exactly what makes them useful as a goodwill gesture.
RACHEL MARTIN, HOST:
A lot of Americans want to help businesses make it through this pandemic, so they are buying gift cards. Now, economists often consider these gift cards to be sort of a bad deal for the customer, which is exactly why they are a useful goodwill gesture at this moment. Here's Kenny Malone from our Planet Money podcast.
KENNY MALONE, BYLINE: When I got Ian Linder Sheldon (ph) on the phone, he was socially distanced.
IAN LINDER SHELDON: Yeah. Actually, I'm at a public park, doing my online college classes.
MALONE: This is what's become of Linder Sheldon's freshman year at Florida International University. And he's got a lot of time now to think about meaningful places - the pizza spot he hung out at an high school, the burger joint he could walk to from his house.
LINDER SHELDON: It's so old, my grandfather used to go there. If that place disappears, that's my whole childhood.
MALONE: Are you on their website now?
LINDER SHELDON: Yeah, I am putting in my billing address.
MALONE: While we talked, Linder Sheldon bought a $25 gift card to that high school pizza place.
LINDER SHELDON: It's kind of sad I'm sending it to myself. So it's to Ian from Ian.
MALONE: There's something, like, that really encapsulates the moment there, the isolation of sending yourself a gift card.
LINDER SHELDON: Yeah.
MALONE: Let's talk about why gift cards are typically a huge pet peeve of economists and financial types.
JOHN PAUL KONING: Sure. My name is John Paul Koning. And I write about finance and money and gift cards.
MALONE: Koning writes the Moneyness blog. And back in August, he was looking through the financial filings of Starbucks. Mixed in with the traditional kinds of loans that Starbucks had taken out, was this huge number - $1.6 billion of this jargony-sounding kind of debt.
KONING: Their stored value card liability.
MALONE: And you were like, what is that?
KONING: Yeah, I was quite curious.
MALONE: Stored value card liability is gift cards. Technically, every gift card is like a teeny loan. And we are giving Starbucks $1.6 billion in teeny loans.
And how good are the terms on those loans?
KONING: Well, first of all, it's a 0% loan from your customer. And secondly, a lot of these loans never actually get paid off.
MALONE: So, like, I lend Starbucks money and then never actually sort of call that entire loan in.
KONING: Or your friend didn't 'cause you might have given it to a friend. And there's a good chance your friend would've lost it or your mother or whoever you gave it to.
MALONE: When you think about a gift card as a mini loan from you to a company, they are a terrible deal for you and an amazing deal for the company - in normal times.
SOFI MADISON: Yeah, sure. Got some boxes and some products going on here.
MALONE: Sofi Madison is in Boston, frantically packing up some online orders at her shop Olives & Grace. She sells everything from Boston-made candy to Tom Brady football candles. And before she shut her physical store, one customer came in looking worried and said, I want to buy a gift card.
MADISON: And then I said, OK, how much would you like that for? And she just paused for a minute. And she said a thousand dollars.
MALONE: A thousand dollars?
MADISON: A thousand dollars.
MALONE: Like, she is very worried about you.
MADISON: (Laughter) Yeah, yeah.
MALONE: Right.
MADISON: You know, it didn't feel like the warm, fuzzy, thousand-dollar in-store purchase. It felt like, you know, here's a hug. Let's hunker down. Here's some seed money. It was a real love and support gesture.
MALONE: Small businesses are waiting for emergency loans from the state and federal government. But in the meantime, customers have realized that there is already a way to hand out a loan - buying a gift card. It is a very generous 0% loan, which normally is the worst thing about gift cards but right now is the thing that makes them particularly useful. Kenny Malone, NPR News.
(SOUNDBITE OF MOKHOV'S "LOVE ABOVE")
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