Starbucks Card Performance:
Program Accounts for 41.4% of Company Revenues
· Starbucks issued $10.98 billion in stored value funds in fiscal 2019, which ended September 29.
· The company claimed $140.8 million in breakage revenue — putting their breakage rate at 1.28 percent.
· Starbucks out-performs the next strongest retail stored value program by nearly three times.
With the release of Starbucks’ 2019 10K this past week, we’re able to see just how important the Starbucks Card is to the company’s overall performance. According to these just-released figures, Starbucks issued $10.983 billion in stored value funds during their 2019 fiscal year, which includes earned loyalty Stars. When measured against year-end revenue of $26.509 billion, the Starbucks Card accounts for a whopping 41.4 percent of their business.
In comparison, the next best-performing programs are GameStop and AMC Theatres — whose stored value-to-revenue ratios are 14.9 percent and 10.2 percent respectively. These figures also include issued loyalty rewards.
By size, the next largest program by confirmed sales is Walmart which sold $8.2 billion in gift cards, as reported in their most recent annual report. Although Apple and Amazon did not report sales, they reported gift card liabilities as $7.543 billion and $3 billion respectively — almost assuredly making those programs larger when measured by volume.
Continuing the Starbucks’ program analysis, the company claimed $140.8 million in breakage income — making their breakage rate 1.28 percent. Their reported year-end breakage is $1,291.7 billion which is down $351.2 million over 2018. The decline is due to the adoption of the new FASB accounting standards (ASC 606) which states that breakage now must be earned proportionately in earnings as redemptions occur. Starbucks reports that approximately $1 billion of breakage is current.
Starbucks also reported a $95 million decline in interest income, due to the quicker recognition of breakage as income.
The only hint that Starbucks gives of Americas versus international stored value performance is where they break out the impact of the adoption of the revenue recognition standards: the Americas accounted for 82.1 percent of the total.
Against the $10.983 billion in issuance, Starbucks redeemed $10.820 billion — some of which can be attributed to being issued in prior years.
In addition to the changes in revenue recognition that ASC 606 governs, the provision also requires more transparency in reporting — which is why Starbucks is providing this level of program detail for the first time. Because of this, we’re not able to compare this year’s performance to prior years exactly — however we can watch this in the future, particularly as compared to company revenue performance as a whole.
And, with China’s influence on the business where Starbucks Rewards has been introduced and their reliance on mobile payments, the Starbucks Card program will continue to be a significant contributor. It’s unlikely that anyone involved in the gift card industry (albeit for those inside Starbucks) could have predicted this level of performance — the question becomes how high can it go in future years? Stay tuned.