The Deadweight Cost of Giftgiving (without the gift)

Daniel Gross digs up a pretty clear-cut case of the deadweight cost of giftgiving -- the giftcards that go unwanted and unredeemed.

A while ago, I wrote in Slate about how gift cards are generally bad news for consumers, good news for corporations, and somewhat inefficient means of giving gifts. Yesterday, Williams-Sonoma proved me right. In this filing (scroll down to the earnings guidance release), the company notes that it plans to record:

"a benefit of approximately $12 million before tax or $0.062 per diluted share associated with unredeemed certificates. During the second quarter of fiscal 2006, we completed an analysis of our historical gift certificate and gift card redemption patterns, which included an independent actuarial study. Based on this analysis, we concluded that the likelihood of our gift certificates and gift cards being redeemed beyond four years from the date of issuance is remote. As a result, we have changed our estimate of the elapsed time for recording income associated with unredeemed gift certificates and gift cards to four years from our prior estimate of seven years. This change in estimate will result in income recognition of approximately $12 million before tax in other income in the second quarter of fiscal 2006."

Translation: $12 million spent on Williams-Sonoma gift cards and gift certificates was utterly wasted because the recipients lost them or decided not to use them. What a great business!

I have been driven by desperation to break out the giftcards for the holidays once in a while. But when you take a step back and think about it, it's really pretty insane. Even people who shop at Williams-Sonoma all the time would prefer $50 to a 50-dollar gift certificate. Their only redeeming (yuk) quality is that they are so easy to wrap...

There are now various services (just google "gift card exchange") where one can buy and sell unwanted giftcards. So now they're fungible too, thus making them just like money in every single respect, except worse.

My husband and I have a long-running no-giftsies agreement. It grew out of mutual laziness and evolved into a kind of strange point of pride. I mean, if I see something I know he'll like, then I'll buy it and give it to him. But I won't save it for his birthday and wrap it up in some pretty paper.