I was watching ‘Stagecoach’ on TV last week. It is a wonderful movie (the version with John Wayne). Some people consider it the best Western ever made. In this movie, a drunk doctor quickly sobers up after drinking a pot of hot, black coffee and then delivers a baby. It is a myth that you can sober up or sober more quickly by drinking coffee. You will find this myth in a lot of Hollywood movies. Coffee doesn’t neutralize or get rid of alcohol in your body. No matter how much coffee you drink, it will have no effect on how long it takes to become sober. In other movies, someone immediately sobers up after having a bucket of ice water tossed in his face. That doesn’t work either. These myths may seem funny, but they really aren’t. There have been fatal auto accidents caused by drunk drivers who thought they were fit to drive because they were drinking coffee. Here’s my New Year’s Eve advice – If you know someone who believes these myths, you should tell him that they are just Hollywood myths.
WHY DO SO MANY COMPANIES SELL GIFT CARDS?
At the Target store in Emeryville, they have gift cards for sale from over 200 companies. Below is a photo I took there. This is just a fraction of the gift cards they had for sale. Gift cards are the single most popular Christmas present in the United States. Why do so many companies issue gift cards? The answer is the obvious one – gift cards are very profitable. The profits from gift cards are so huge that many famous stores and restaurant chains are only able to stay in business because of the profits from their gift cards. But – how is that possible? Gift cards are usually a small percentage of a company’s total sales.
There are a number of ways in which a company makes money on its gift cards, but the 2 big ones are this:
1. A gift card is an interest-free loan to the company that issued the card. Even very big companies can’t borrow money at 0% interest.
3. The main reason why gift cards are so profitable is because so many of them are never redeemed. Retailers make billions of dollars every year from unredeemed gift cards.
Starbucks is a good example of just how profitable gift cards are. In 2021, Starbucks made $160 million profit from expired gift cards and breakage income, that is, income from gift cards that are unlikely to ever be redeemed. To put $160 million a year profit into perspective, if Starbucks was a bank, it would be among the top 10% in the United States. Starbucks customers are holding billions of dollars of unredeemed gift cards. This is a major source of financing for Starbucks. If you are holding a Starbucks gift card, then you are giving Starbucks an interest-free loan. The next time you are in a Starbucks, look around. Everything for sale: the bagged coffee, the merchandise, the pastries, the sandwiches, etc. is financed by unredeemed gift cards – your unredeemed gift cards.
What is breakage income? Suppose someone has a $50 Teriyaki Madness gift card, and he spends $49. The card now has a $1 balance. That $1 balance is unlikely to ever be redeemed. Most people throw away gift cards with balances that small. After a while, all gift card issuers write off these small balances as breakage income. Nationally, breakage income comes to about 3% of all gift card sales; however, some companies have breakage rates as high as 10%, and breakage income is pure profit.
Maintenance fees. Another reason so many gift cards are never redeemed is maintenance fees. A maintenance fee is a monthly deduction from the value of a gift card for inactivity. So, if you have a $25 gift card, and it has a $2.00 a month ‘maintenance fee’, that card will become worthless fairly quickly. Some gift card issuers call their maintenance fees ‘inactivity fees’, ‘dormancy fees’, or ‘service fees’; but they are all the same thing. These fees may seem like a scam, but retailers have a legitimate need to know what their liabilities actually are. It’s not their fault if you lose your gift cards or never redeem them. In California and a few other states, gift cards never expire, even if a gift card has an expiration date printed on it. California also bans gift card maintenance fees.
My advice. Don’t think of your gift cards as part of your savings. Gift cards do not improve with age, and many become worthless. Use or sell your gift cards. You can sell gift cards on a number of websites, like Giftcards.com. You can also donate unused and partially used gift card balances to a very long list of charities through the website Charity Choice. You can get an income tax credit for your donation.
Don’t regift gift cards like the proverbial fruitcake. Don’t regift gift cards unless you feel pretty certain that the person you are giving it to will actually use it. Someone once gave me a $100 gift card from a tanning salon in Albany. The person who gave me the card got it from a third person who also got the card as a gift. A gift card from a tanning salon is worthless to me. Going to tanning salons increases your chances of getting skin cancer by 50% or more. I knew 2 people who died from skin cancer. Tanning salons are now subject to a 10% federal excise tax, modeled after the tobacco tax. The tax is to offset the cost to the government of providing medical care to people on Medicare and Medicaid who get cancer from going to tanning salons. It seems to me that a tanning salon gift card is a sadistic present, like bringing brownies to someone who is going to Weight Watchers. I’ve known people like that. Andrew Carnegie used to send John D. Rockefeller (whom he hated) a bottle of expensive Scotch whiskey at Christmas every year. Rockefeller was a devout Baptist and did not drink or smoke, and Carnegie knew it. Rockefeller sent Carnegie nasty Christmas presents in return. I gave my tanning salon gift card to a charity website, but looking back, maybe I should have just tossed it in the trash can.
WHAT IS THE WORST MAJOR TOURIST ATTRACTION IN CALIFORNIA? I hope to cover all 50 states.
ANY DRIVE-THROUGH REDWOOD TREE. There are 3 drive-through redwood trees in northern California. Below is a photo of the drive-through tree in Leggett, California. The tree has a hole cut in its base so you can drive a car through it. Cutting a hole like this will eventually kill the tree. When one of these trees dies, the owner just cuts a hole through another big tree nearby and moves the road. Leggett is a 4-hour drive north of San Francisco. The other 2 drive-through trees are even farther away. There is a $5 fee to drive through the tree. On a summer day, you may have to wait in a long line to drive through the tree. That’s because people stop their cars in the tree and get out to be photographed next to their car parked in the tree. There is a gift shop there, but after you have driven through the tree and visited the gift shop, there is nothing else to do. A lot of tourists visiting San Francisco spend a day – a whole day – just to drive through one of these trees and then return to the city. My father said that he thought that a drive-through tree was the stupidest tourist attraction in America.
You don’t need to drive 4 hours to see big redwood trees. There are a lot of places to see them in the bay area, but unfortunately, there are only a few places where the first generation or old-growth redwood trees weren’t cut down. They are usually valleys where logging trucks couldn’t get in. The best known of these places is Muir Woods, but there are other places in Marin County with old-growth redwoods, such as Roy’s Redwoods, where George Lucas filmed parts of Star Wars movies.
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