They didn’t provide proof of that allegation. At least, not in this article. The consumer group alleges that Starbucks claims unused gift card balances as revenue. Are we sure they aren’t showing a liability for the respective amount? I didn’t look through their corporate filings, and the article doesn’t provide citations from public filings. Just accusations.
So, in the linked complaint (not a full lawsuit yet, btw), they cite “breakage” where Starbucks corporate makes an estimate each year as to the amount of banked gift cards they reasonably believe will never be spent. It looks like it has averaged about $185M in the last few years. This can be moved from deferred revenue to actual, and thereby improve the financials. This could theoretically be fucked with on the margins and allow execs to pocket more money, and to some extent it obviously encourages Starbucks to promote gift cards (in the broad sense) over other payment methods.
The whole complaint is odd. Starbucks obviously feels like they have a winner in this scheme, and almost everything alleged in the complaint is kinda fucky, to the point that I think it’s worth pointing out as a consumer protection issue. That said, the individual impact on any one consumer is very small and there are numerous workarounds for a slightly motivated person, and the tone of the complaint comes off kinda like pearl-clutching and paternalistic. Maybe you have to write it that way to make sure it’s taken seriously, but it’s not making for very persuasive reading.
I know I’m coming off all boot-licky, but this all seems legal. If Starbucks is disclosing the gift card amount as a potential to be moved from a liability to revenue, and if this is legal in tax laws, then this lawsuit is overreach and makes it seem like they’re just looking for a payout.
It’s been pointed out already that you can use the remaining balance of a gift card to zero it out and pay whatever is left in the order with another means of payment.
This lawsuit is describing how gift cards work. Might as well sue all merchants.
Is that explicitly verboten? Can you not claim unspent gift cards as revenue?
I genuinely don’t know, but if it’s allowed or a business’s choice, then I don’t know what the hell the story is here. If they are doing shady accounting practices it’s one thing, but if they are just reporting their revenue/profit from gift cards…who fucking cares?
Gift cards are, by design, a way for companies to increase revenue and profit. They are known to get lost and go unspent. That’s straight cash for the company. The ones that get used, get used at the company.
I’m no law expert, but I have dealt with POS and retailers, and their tax people. My understanding is that you always report the loading of a gift card as a liability. It may be categorized as a different liability because you don’t necessarily owe that money back. As in, most gift cards are non refundable.
When the holder of the gift card redeems it for products, the balanced used gets deducted from your liability and is added to revenue.
If Starbucks were straight reporting it as revenue with no explanation, I can see that being scrutinized. But if they are reporting it as potential revenue, then that’s up to shareholders to weed through that and make investments based on that.
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They didn’t provide proof of that allegation. At least, not in this article. The consumer group alleges that Starbucks claims unused gift card balances as revenue. Are we sure they aren’t showing a liability for the respective amount? I didn’t look through their corporate filings, and the article doesn’t provide citations from public filings. Just accusations.
So, in the linked complaint (not a full lawsuit yet, btw), they cite “breakage” where Starbucks corporate makes an estimate each year as to the amount of banked gift cards they reasonably believe will never be spent. It looks like it has averaged about $185M in the last few years. This can be moved from deferred revenue to actual, and thereby improve the financials. This could theoretically be fucked with on the margins and allow execs to pocket more money, and to some extent it obviously encourages Starbucks to promote gift cards (in the broad sense) over other payment methods.
The whole complaint is odd. Starbucks obviously feels like they have a winner in this scheme, and almost everything alleged in the complaint is kinda fucky, to the point that I think it’s worth pointing out as a consumer protection issue. That said, the individual impact on any one consumer is very small and there are numerous workarounds for a slightly motivated person, and the tone of the complaint comes off kinda like pearl-clutching and paternalistic. Maybe you have to write it that way to make sure it’s taken seriously, but it’s not making for very persuasive reading.
Thank you for the citation and explanation.
I know I’m coming off all boot-licky, but this all seems legal. If Starbucks is disclosing the gift card amount as a potential to be moved from a liability to revenue, and if this is legal in tax laws, then this lawsuit is overreach and makes it seem like they’re just looking for a payout.
It’s been pointed out already that you can use the remaining balance of a gift card to zero it out and pay whatever is left in the order with another means of payment.
This lawsuit is describing how gift cards work. Might as well sue all merchants.
Is that explicitly verboten? Can you not claim unspent gift cards as revenue?
I genuinely don’t know, but if it’s allowed or a business’s choice, then I don’t know what the hell the story is here. If they are doing shady accounting practices it’s one thing, but if they are just reporting their revenue/profit from gift cards…who fucking cares?
Gift cards are, by design, a way for companies to increase revenue and profit. They are known to get lost and go unspent. That’s straight cash for the company. The ones that get used, get used at the company.
I’m no law expert, but I have dealt with POS and retailers, and their tax people. My understanding is that you always report the loading of a gift card as a liability. It may be categorized as a different liability because you don’t necessarily owe that money back. As in, most gift cards are non refundable.
When the holder of the gift card redeems it for products, the balanced used gets deducted from your liability and is added to revenue.
If Starbucks were straight reporting it as revenue with no explanation, I can see that being scrutinized. But if they are reporting it as potential revenue, then that’s up to shareholders to weed through that and make investments based on that.
I’m not understanding the illegality here.
Yea, sounds like a dumb lawsuit and clickbait lazy reporting.