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Instant Analysis: Target Cashing In on Unwanted Gift Cards

By Rich Duprey - Jan 1, 2016 at 2:07PM

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Target partners with gift card exchange to bring in customers after Christmas is over.

What happened?
Target (TGT 1.70%) envisions extending the Christmas sales season by making it easier for customers to exchange unwanted gift cards for Target cards. The retailer has partnered with Blackhawk Networks' (NASDAQ: HAWK) Cardpool division, which not only sets up the gift card displays and carousels you see in retail outlets, but also operates a business selling them online at a discount. Target's agreement allows customers to trade in unwanted gift cards at its mobile phone counter in the electronics department and receive a Target gift card immediately in exchange, though it will be less than face value.

Does it matter?
The retailer began working with Cardpool in November, but only recently began highlighting the program's availability, knowing that many consumers will have received unwanted gift cards for Christmas. By making it easy for customers to trade in their unwanted cards for Target gift cards, it hopes to boost sales and extend the holiday momentum.

Blackhawk Networks is one of those companies you don't see even though its product is everywhere. They're the ones that set up the in-store displays where gift cards are prominently hung, whether they're so-called "closed loop" brand cards from retailers like Apple or Starbucks, or "open loop" cards that can be used anywhere.

Its Cardpool division runs the online exchange where customers can trade those gift cards in and get cash, though at a discount. The company has been growing smartly as a result of partnerships like the one with Target, and in the third quarter Blackhawk's operating revenues rose 21% as a result of a 66% increase in Cardpool's sales. Like the Target deal, it has a similar program in place with video game outlet GameStop.

Last year, Wal-Mart (NYSE: WMT) partnered with rival CardCash, which identifies itself as the world's largest gift card exchange.

The discounts on gift cards fluctuate with demand, and while consumers can probably get a better deal by exchanging their gift cards directly with Cardpool online, the benefit of the Target exchange program (and with GameStop) is its immediacy and convenience. You might get a Target card in return with a slightly lower face value, but you have it in your hands and can use it immediately instead of waiting for a check to be mailed.

It's not a service that will prove meaningful for Target, though the deal continues to build out Blackhawk Network's own network of partners.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AAPL and SBUX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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