The Holiday’s Top 12 “Most Wanted”: Day 1 - Paper or Plastic?

“You have succeeded in life when all you really want is only what you really need.”

Vernon Howard , American author & philosopher

Consumer spending in the 4^th quarter of every year is a fantastical false-positive indicator of the health of the US economy.   And yet every year, like some prestigious awards ceremony, economists hold their breath in anticipation of the result of how consumers have managed their "holiday money".   Sometimes it becomes muddled by the media, but understanding the causality of consumer spending, saving and investing around the holidays can serve as a reminder that we are in the proverbial driver’s seat of this economy and not just a passenger.       

In the tradition of the Twelve Days of Christmas, NDNR is going to spend the next 12 days examining the Top 12 Desired Gifts of the 2010 Holiday Season (from a compilation of sources) and scratch the surface of potential economic impact that purchasing these products may have.   

   

The #12 Most Wanted Holiday Gift: Gift Cards

According to MSN’s Money Central, “gift card” sales in the US are going to reach an all time high this holiday season of $35 billion dollars, a 25% increase over 2009.  This is the most versatile and often coveted holiday gift.  In fact, the vast majority of the 10 billion (10,000,000,000) plus that are manufactured every year world-wide are purchased and exercised in the 4^th quarter (Oct, Nov, Dec).   The economic impact is widespread, benefiting several types of organizations, most notably retailers, marketers, banks and the manufacturers/control firms of said gift cards. 

While a retailer will benefit by the promotion of their brand and increased sales, some wonder how a bank will benefit from the purchase and use of a gift card.  Generally speaking there are two types of gift cards: Retail Direct or “closed-loop” cards and Bank Sponsored or “open-loop” cards.  The benefits of a closed-loop card are in most cases; no fees for purchasing, activating or using the cards and no expiration date.   However, unlike the open-loop cards, your purchases and products are limited to the inventory and even location of the issuing retailer.  The majority of “open-loop” cards are branded by the top-four companies in “payment technology” or “PT”, Visa, Mastercard, American Express and Discover.  This makes the card more widely accepted and far more versatile.  Every time a purchase is made by a PT branded card, a percentage (usually between .5% and 5%) of the purchase is paid to the bank that hosts the technology that allows the processing of PT branded cards and which ultimately pays the merchant for the  purchase.  The PT companies do receive a small percentage of the purchase paid by the cards and most often charge an activation fee ($2-$5, some of which is paid to the merchant of the gift card as a commission and covers the manufacturing and packaging of the card itself).   These cards can also include expiration dates, after which monthly deductions are made until the card balance is zero.  Often an organization representing a large group of retailers (ie: The Mall of America), will sell open-loop gift cards that follow the same rules. 

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Marketers also win by promoting gift card sales.  Dan Horne, a marketing professor at Providence College and an expert on the gift card market, weighs in: "Consumers look at a $50 gift card and think, 'I can get a $75 item, and it only costs me $25.' Recipients are getting cool things for a cheap price. And the giver thinks, 'I gave you the means to buy that thing.' The perceived value is very strong."  As a result of this mentality, it can be suggested that less thought is given to the socioeconomic impact of purchases made by gift cards, because the item is “perceived” as incredibly inexpensive.  However, the true price of the item is unaffected and the organizations behind the product or service reap the maximum benefit.     

So now that it has been examined who benefits from the sponsorship of gift cards, who or what is impacted negatively?  Consider the environment.  Despite their small size, gift cards ecological footprint can be huge. The cards contain polyvinyl chloride (PVC) an extremely toxic compound that is a known carcinogen. Other toxins in gift cards include chlorine residue and heavy metal pollutants. Those 10 billion plus produced each year contribute 75 to 100 million pounds of toxic plastic that will lie in landfills leaking toxins for the duration of their long decomposition (giftah.com).  This does not include the waste as a result of the manufacturing process or the packaging that often accompanies the card itself.  

 

There are alternative solutions to disposable gift cards.   Besides new bio-friendly “recyclable” or “made from recycled material” cards, alternative biodegradable materials are being used to manufacture gift cards.  Many retailers are beginning to use virtual electronic gift cards which can be used at their online stores or carried in a hand-held device or smart phone and presented in person at a retail outlet. 

If you do receive a gift card, consider finding a method to recycle it (there are organizations like Earthworks who recycle these), or ask the retailer if they have a method in place for recycling their own cards.     

For Discussion:

1. Can you think of any other parties negatively impacted by the sale of gift cards? 
2. How do you feel about the giving and receiving of gift cards?   What are some personal benefits/cost of these gifts?  Explain your position.
3. How much do you estimate that you'll gift in the form of a gift card?   Are there any environmentally friendly alternatives you can consider?