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How much value do consumers derive from spending at different companies? The secondary market for gift cards provides insight into how much consumers value the dollars they spend at different companies. Companies whose gift cards trade at deeper discounts provide less value for money than companies whose gift cards trade at lesser discounts. This data provides market-driven insights into the value proposition of different companies.

The Secondary Market for Gift Cards

Gift cards are resold on ebay.com in auctions and in fixed-price listings. They are also brokered by plasticjungle.com and abcgiftcards.com. Each of these markets allows the owners of gift cards to convert them into cash, and for buyers of gift cards to purchase them below their dollar balance.

Consumer attitudes are revealed by the degree to which gift cards trade at discounts to their remaining balances. Deeper discounts are demanded by bidders who feel that they would be losing value in a gift card relative to cash. For example, consider a consumer who buys a Christopher Banks (NYSE:CBK) $100 gift card for $90 in cash. That consumer is demonstrating that spending $100 is worth at least $90. As a baseline, Amazon.com (NASDAQ:AMZN) gift cards regularly trade near their balances on ebay.com. Similarly, Wal-Mart (NYSE:WMT) gift cards often trade below a 4% discount.

Collecting Gift Card Data

Since ebay.com often operates by auction and the other gift card sites have inventories of many gift cards, the listed discounts are likely near what consumers feel spending at these establishments are worth in USD. In order to confirm this, at least two websites were used to find the gift card discounts at each establishment. Only publicly-traded establishments with gift card discounts that could be confirmed by two sites are listed:

B to C Company

Ticker

Avg Discount

ABCgiftcards

PlasticJungle

Ebay

Beta

Target

TGT

3%

5%

1%

0.89

Walgreens

WAG

3%

3%

4%

0.99

Best Buy

BBY

5%

4%

6%

1.3

Staples

SPLS

5%

5%

6%

0.93

CVS

CVS

6%

6%

6%

0.74

Office Depot

ODP

7%

7%

7%

3.3

Marriott

MAR

7%

7%

7%

1.48

Lowe's

LOW

8%

8%

7%

1.19

Olive Garden

DRI

8%

8%

8%

0.85

Sears / Kmart

SHLD

8%

8%

8%

1.99

Home Depot

HD

8%

7%

9%

0.83

Ross

ROST

9%

12%

6%

0.71

Tiffany & Co.

TIF

9%

8%

10%

1.81

Bed Bath & Beyond

BBBY

10%

8%

12%

1.04

Dell

DELL

10%

10%

10%

1.41

Christopher Banks

10%

10%

10%

1.95

Williams-Sonoma

WSM

10%

10%

10%

1.72

McCormick & Schmick's

MKC

10%

11%

9%

0.42

Kohl's

KSS

10%

10%

10%

0.85

Domino's Pizza

DPZ

11%

10%

11%

1.24

TJ Maxx

TJX

11%

10%

11%

0.58

Chico's

CHS

11%

15%

7%

1.77

Columbia

COLM

11%

12%

10%

1.06

Starbucks

SBUX

11%

8%

14%

1.22

Petsmart

PETM

11%

16%

6%

0.72

Regal Entertainment

RGC

12%

11%

12%

0.93

OfficeMax

OMX

12%

11%

12.5%

2.57

Bebe

BEBE

12%

12%

13%

1.2

Dick's Sporting Goods

DKS

13%

13%

12%

1.33

Barnes & Noble

BKS

13%

12%

14%

1.01

Build-A-Bear Workshop

BBW

14%

12%

15%

1.56

Zumiez

ZUMZ

18%

20%

15%

1.87

Jamba Juice

JMBA

19%

21%

18%

2.52

JCPenney

JCP

20%

28%

12%

1.85

Urban Outfitters

URBN

22%

25%

18%

1.01

Callaway Golf

ELY

26%

25%

27%

1.23

American Apparel

APP

26%

28%

25%

2.35

Data Collected 9.12.2012

Necessities vs. Discretionary Spending

Another explanation of the divergence between different discounts is that bargain hunters who buy second-hand gift cards are fixated on consumer staples instead of discretionary or luxury items. A quick way to check this would be to assess a correlation between gift card discounts and beta, the movement of a stock with the broader stock market. Discretionary spending-driven companies tend to have higher betas than consumer staples.

As it turns out, there is a weak correlation between a company's beta and the discount its gift cards trade for in the secondary market:

(click image to enlarge)

Gift Card Discount vs. Beta

Data Analysis

The lower the discount, the more consumers (1) consider goods and services good value for money, or (2) consider the goods and services of a company a necessity. Since the degree to which goods and services are considered staples is captured in the trend line, the distance below the trend line is the extent to which consumers regard spending at a company as valuable.

There are many firms on our list, which are associated with unsurprisingly low gift card discounts. Even after accounting for beta, Target, Walgreens, and CVS gift cards trade at very low discounts, suggesting that consumers find their prices offer great value.

Surprisingly, Best Buy, Marriott, Office Depot, and Staples also trade at low discounts for their beta values. These companies are not considered consumer staples, yet consumers view credit at their stores to be almost as valuable as cash.

All of these firms have the power to increase their prices substantially before eroding consumer perceptions of value for money. Of these seven firms, all but Office Depot have low betas and are interesting as defensive stocks picks with pricing power.

Please read the article disclaimer.

Source: 5 Stock Picks Using Consumer Perception: The Gift Card Market