Thursday, January 17, 2008

HD POCKETING $$$ OFF OF GIFT CARDS

Some may say the Home Depot YouTube $25,000 contest of last December was all about holiday cheer. However, people like Patti Bond have written on this subject. If you don't remember Patti, she's the "journalist" that was hired by Home Depot just EIGHT DAYS after she wrote a glowing article on the contest. Nice, huh? Well, she explains the contest:

"Home Depot also is trying to boost gift card sales with the contest, which comes just ahead of the last-minute holiday rush."
So, they were trying to boost gift cards, right? Probably not a big surprise to most, although there are still those out there who think this was solely a "mom-and-pop" feel-good contest. But, if Home Depot is going to dish out around $30,000 in prizes, plus pay for Imre Communications to get involved, plus any other overhead, they would likely want to get a return on their investment. Well, according to an article in the NY Post, the unredeemed gift card business is a BILLION dollar business for companies. As a matter of fact, in 2005, Home Depot alone had $43,000,000.00 in unused gift cards.

Some states, like Delaware, are pretty aggressive in pursuing the consumer's ability to cash in on their gift card after a length of time, say longer than a year. So, Home Depot set up a "giftco" (a presumably separate gift card unit of Home Depot) in perhaps the friendliest state for cashing in on the cards. This, from the Post (emphasis added):

"Out-of-state giftcos don't make retailers immune to home-state restrictions on fees and expiration dates for gift cards, which have become fewer amid increased media scrutiny and pressure from lawmakers. But the cash from unredeemed cards is key to a giftco's profitability, industry insiders say.

As a result, many retailers in corporated in Delaware - which aggressively pursues breakage - have moved their giftcos to more gift-card friendly confines, says George Delta, a Virginia- based corporate lawyer.

Friendlier states include Ohio, Florida, Washington and Virginia - indeed, the latter is the home of two prominent gift-card subsidiaries: Best Buy and Atlanta-based Home Depot.

So, Home Depot runs a contest to promote their gift cards (which I believe was handled in an absolutely horrendous, scandalous manner). A percentage of those gift cards never get redeemed, and Home Depot cashes in on millions of dollars, right? Does it still sound like a "mom-and-pop" feelgood contest to you? Does this all sound a little shady to you? The Post reports (emphasis added):

To avoid charges that a giftco is merely a "shell company" or accounting tool, J. Brooke Spotswood, a Virginia-based lawyer, advises a retailer to establish its giftco in a separate office with separate employees, preferably located in the state where the giftco is incorporated. Giftcos also should have their own bank accounts and outside directors, he says.

Home Depot Incentives, the home-improvement giant's Virginia-based gift-card unit, was founded in 2001 and has its own employees. But a company spokesman was unable to verify whether those employees work in Virginia.

So, given that Home Depot Incentives (the same people that created the YouTube contest) stands to make, oh, like $43,000,000.00 off of you and I buying their gift cards and handing them off with a "Merry Christmas!", perhaps the Mercury News put it best:

"When you buy a gift card, it's not the retailer who's supposed to get a present. But that's how it works out when consumers fail to redeem all or part of gift cards worth billions of dollars every year."

The best advice I can give, is make sure everyone you know uses their gift card promptly. You should at least get some merchandise out of the deal. As for me, next year I'll be sending my holiday cheer by writing Christmas cards, not buying Home Depot gift cards.