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GIFT CARD INSURANCE PROGRAM:
Maximizing the Value of your Gift Card Program.
Why the Gift Card Insurance Program?
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Gift cards are fast
becoming the most popular holiday presents, with more than two-thirds
of U.S. shoppers expected to buy nearly five cards on average
this year, according to a survey of about 17,500 consumers by
accounting firm Deloitte & Touche. |
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The problem is that
more than half of those people don't fully redeem merchandise.
In the Deloitte study, just 48 percent of respondents had redeemed
all of the cards they received last year. |
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That means retailers
essentially have been paid upfront for goods they have not delivered.
It requires them to establish burgeoning and open-ended liabilities
on their balance sheets while not being able to book the sale
until the customer comes to cash them in for merchandise. |
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GIFT CARD INSURANCE PROGRAM
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Non recognition of revenue |
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Growth in liabilities |
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Dormancy and expiration fees |
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Failure to fully capitalize on growth in the gift card market |
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Weakens the balance
sheet |
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Effects share price
for publicly traded companies and valuation for private companies |
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Loss of customer
goodwill and loyalty |
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Undermines the true
potential of the Company |
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Gift Card Insurance Program: What does this program achieve?
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Removes balance
sheet liability for previously issued cards |
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Accelerates the
ability to recognise and use a proportion of future and
current gift card revenue. |
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Allows for prospective
and retrospective card sales to be incorporated into the
program. |
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Examples:
Gift Card Insurance Program: Cost at 15% Breakage
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Retailer has issued Gift cards of $100,000,000 to December 31st |
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Expected residual value (Breakage) after 3 years is 15% |
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Can recognize
the full policy value immediately on the balance sheet
of $15,000,000. |
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May have the ability of amortizing the premium up to 5 years |
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Gift Card Insurance Program: Cost at 10% Breakage
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Retailer has issued Gift cards of $50,000,000 to December 31st |
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Expected residual value (Breakage) after 3 years is 10% |
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Can recognize
the full policy value immediately on the balance sheet
of $5,000,000. |
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May have the ability of amortizing the premium up to 5 years |
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