Millennials buying gift cards for … themselves, as retailers race to mimic Starbucks digital dollars success

Dunkin Donuts is selling Dunkin dollars now, a trend you can expect to continue.
Dunkin Donuts is selling Dunkin dollars now, a trend you can expect to continue.

Young folks have found a new use for “gift” cards. They are buying them for themselves.

A new report issued this week by analyst firm Mercator Advisory Group found a big jump in purchase of “retailer-specific” gift cards among millennials.

“Nearly 3 in 5 young adult respondents indicated they bought them during the previous year, up from less than a half of young adults who did so in the 2015 survey,” the report said.

The intermingling of gift cards and apps seems to be behind the trend.

This story first appeared on Credit.com. Read it there. 

Increases in overall retail gift cards were particularly sharp in the 18-24 old age range, which saw an increase from 44% to 53%; and among those 25-34, which jumped from 48%-57%. The rise is even more dramatic when a three-year trend is considered — among the 18-34 set, the jump was from 39% to 57% from 2013-2016.  During that same stretch, gift card sales actually dropped among those over 65, and were nearly flat for 35-64 year olds.

Why the increase among young people? Gift cards aren’t just for gifts any more. Young folks are loading gift cards onto retailer apps, and using the money on themselves, says report author Karen Augustine.

“Retailers are introducing more mobile-based apps and offers when using their loyalty and prepaid programs, which may be fueling this growth in retailer gift card purchases,” Augustine said. “Young adults continue to lead this mobile revolution and growing use of prepaid cards as a money management tool.”

Starbucks continues to lead the way with its coffee cash app, which is little more than a gift card management tool with a quirky loyalty program sprinkled on top. Still, the Starbucks app is a raging success. About $1.2 billion of customer cash is now loaded on the app/gift card tool — which means Starbucks holds more cash than some banks.  About one-quarter of all transactions at U.S. Starbucks stores is now conducted via app. That serves customer loyalty, and it also saves Starbucks a killing on credit card transaction fees.

Meanwhile, the Starbucks app offers a huge advantage to busy young adults – those who pay via the app can skip to the end of the line, pick up their drink, and go.

“I believe that millennials are taking advantage of the plethora of mobile apps that retailers have introduced that support their prepaid cards, and they start using more prepaid cards in general for their own use,” Augustine told me via email. “We see more prepaid cards being bought for personal use, not just for gifts.”

Other retailers, like coffee competitor Dunkin Donuts, have noticed Starbucks’ success, and now allow consumers to store value via gift cards on their own apps – a feature sometimes called “digitized stored value.”

“The discount retailers are doing well in this space, despite their late entry,” Augustine said to me. “Dunkins is a regional brand that we do track, but national fast food chains are popular, too.”

On the other hand, a Forrester report issued last year suggests there’s plenty of room for retail-specific apps to grow. It found that 60% of consumers who use a smartphone to shop online have fewer than two retailer-specific apps on their phone; and only 18 percent of app users have used that app to store gift card value.

While plenty of store apps let users check gift card balances, or even buy and send gift cards, a study by RSR Research called the Digital Gifting Benchmark Study found that few popular apps complete the cycle and let consumers store and spend money via the app.

“Too many retailers still offer no option to buy gift cards via mobile web or app,” the report said.  Only 12 out of 100 retailers studied allowed consumers to load a gift card into their app.

The study lists Sephora, Starbucks, Dunkin Donuts, Home Depot, and Amazon as the retailers with the best digital gift card experience.

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About Bob Sullivan 1327 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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