December 03, 2003

Retailers say gift cards are boosting sales

What is small, plastic and shiny and will bring retailers $45 billion in sales this year? The answer is gift cards, which are quickly replacing paper gift certificates.

Unlike gift certificates, which often are stored in the cash drawer away from the customer's eye, gift cards are displayed prominently. They look like credit cards and come in various colors and designs. Although they cost more than printing paper certificates, gift cards generate more revenue for retailers and are less likely to be counterfeited.

Gift cards are swiping market share from gift certificates. They burst onto the retail scene in 1995 when the likes of Blockbuster, Kmart Corp. and Coca-Cola Co. began testing the products.

Lately, other retailers have taken notice and gift cards are now sold at restaurants such as Don Pablo's, bookstores such as Books-A-Million, as well as national hair salons and movie theaters.

In fact, gift-card sales are expected to surpass $72 billion in 2006, said Cathy Heitmueller, associate director of sales with Columbus, Ga.-based Total System Services Inc.

Total Systems Services, or TSYS, creates and tracks gift cards for 12 million shoppers at department stores such as Nordstrom's and Canadian Tire.

"Within the past three years, there's been an enormous adoption rate," Heitmueller said. "The heavy hitters went first, and the others are branching over to branded gift program."

Locally, Moraine-based Elder-Beerman Stores Corp. unveiled its gift cards for the 2001 holiday shopping season. Company spokeswoman Gloria Siegler said sales jumped that year, partially attributable to the arrival of gift cards.

And Trotwood-based Moto Franchise Corp. is introducing its first gift cards for this holiday shopping season.

How it works
"Studies and research show retailers who had paper certificate programs in place and switched to plastics, increased the amount they sold by 50 percent to 100 percent," Heitmueller said.

Gift cards are sold in denominations usually starting at $5. Unlike paper gift certificates, the store does not return cash value on the unused amount.

With gift certificates, a shopper could buy a Gap sweatshirt for $20 with a $30 gift certificate and get $10 back in cash.

With gift cards, however, once they're swiped, the purchase amount is deducted from the original amount and the remainder stays on the card as a balance.

This can lead to multiple trips back to the same retailer. But 10 percent of gift card users will not use the whole amount, Heitmueller said, putting money back into the retailers' pockets by allowing them to keep the unused portion that has already been paid. Also, customers who spend the entire gift card amount generally spend an additional 30 percent of the gift card total on other products.

There also are inactivity fees that kick in when a card is not used for a certain period. Generally, a retailer will subtract $2.50 or $5 per month if the card is not used.

Besides providing a financial perk, gift cards also help companies with branding. Gift cards carry the company logo, and many have sleek, eye-catching designs. At Best Buy, for example, the gift cards have holograms that make them especially noticeable.

And Bloomingdales, owned by Cincinnati-based Federated Department Stores, is launching highly advertised gift cards for the holidays, which include a signed gift card with a picture of singer Harry Connick Jr.

It also has decreased check fraud. Heitmueller said scammers could print fake gift certificates on home computers, but, "It's real difficult to recreate a Target gift card."

The cost of business
But gift cards carry a large expense to businesses that use them, and are still not cost-effective for smaller retailers, experts say.

The cost for gift cards varies between $1 and $3 per card depending on quantity, type of plastic used and the type of scanning surface -- magnetic strip or radio frequency.

Doug Bruggeman, vice president of finance for Dayton-based Rex Stores Corp., said Rex has not yet taken the plunge because it would cost too much.

"We've discussed it, but at this point (we) made a decision it didn't fit," he said.

But if trends continue, gift cards will soon become a staple at retailers as popular as cash registers and receipts.

"They're absolutely everywhere," Heitmueller said.

E-mail [email protected] Call 222-6900, ext. 101.

Posted by Craig at December 3, 2003 09:35 PM