Paper or Plastic?

Once upon a time, giving a gift certificate was seen as a copout, a substitute gift for people consumers just didn't know how to shop for. As a result, gift certificates were never more than an ancillary business for retailers. But as the market modernizes, and technology makes giving in-store credit more convenient, gift cards are becoming much more than just a supplemental source of revenue. In fact, for 2005 business managment consultant Deloitte & Touche predicted that gift cards would be the number one gift purchase.

For the recipient, gift cards represent “found money,” offering the pleasure of shopping with none of the anxiety of spending. For the giver, cards are fast and easy, making them especially appealing for gift-giving across geographical, gender, or generational divides.

“What's happening now is it's not so much that you're looking for a Kate's gift but that you're buying for a Kate's person,” says Melanie Nerenberg, director of marketing for Kate's Paperie, a chain of high-end stationery stores in and around New York.

To date, chain stores have garnered the lion's share of the gift card business — mostly because they're the ones selling the cards. Buying for distant recipients helps drive gift card business to chains, because customers can buy a gift card in Wisconsin to be redeemed in Massachusetts.

However, single store and small chain retailers shouldn't let logistical or financial factors stop them from getting in on the action. As gift cards claim more of American's gifting dollar, independent retailers can't afford to get left behind.

Essentially, gift cards work the same way as a gift certificate: they represent a certain amount of money the recipient has to spend. One key to their appeal is that they look and feel more modern. “Gift certificates have an old-fashioned image,” says Annette MacEvoy of Annette MacEvoy & Associates, New York.

Because of their often awkward size, gift certificates can be inconvenient to carry, and a certificate left at home is likely to go unused. Gift cards, however, tuck into a wallet just like a credit card or driver's license, remaining ready-at-hand for impulse purchases, and serving as a reminder of unused credit.

Gift cards also offer an advantage for retailers, to whom they represent “stored value.” When a customer spends part of their gift card, the balance is automatically updated, encouraging a return visit. In addition, cards can be deactivated in case of loss, theft or fraud, and retailers can easily track redemption of gift cards with sales reports.

“Gift cards are easier to track and easier to replace,” says Nerenberg, “In terms of expense they're about the same [as gift certificates], but in terms of customer service, it's a savings.”

With the increased use of credit cards, plastic is also associated with freedom, comfort and innovation — a mix of positive associations any brand builder would envy. Meanwhile, the downsides of credit, such as anxiety about mounting debts, are not a factor with prepaid gift cards.

The most common way for independent retailers to implement a gift card program is to hire their credit card processing company, according to Brenda Gilpatrick, president of Your Fantastic Plastic, an Atlanta-based gift card consulting firm. Most processing companies offer an inexpensive solution tailored to work with the equipment retailers already have.

But that's not the only option. Gilpatrick recommends choosing a vendor that can provide small quantities of cards and supports online activation. After all, if a corporate or charitable client wants to buy gift cards in bulk — an easy solution to business giving and potentially a lucrative one for stores — retailers don't want to have to swipe a hundred cards individually. The vendor should also support online card history and management.

Of course, whereas gift certificates are virtually free to distribute, gift card programs do have startup costs associated with them. Retailers must buy the cards, and if they want custom design they'll have to pay a designer and purchase more cards to meet the minimum order. Cards can be managed through an Internet connection or an existing card terminal; stores which have neither will need to purchase some inexpensive (under $100) equipment to get their card program started. In addition, there are monthly, activation and/or transaction fees associated with most processing companies.

However, while it takes time and financial investment to build a gift card program, most retail outlets show at least a 20 percent increase in sales when offering them, according to the Tarrytown, NY-based American Booksellers Association (ABA). Some stores report increases as high as 30 to 50 percent.

Retailers are well-advised to waive the expiration dates and non-use fees that were once common ways of resolving the accounting dilemma inherent in gift cards (gift card money comes in when the card is bought, but is not “received” until the card is redeemed). “I urge any small retailer to eliminate [fees and expiration dates] if at all possible. It really gives them a competitive advantage,” says Gilpatrick.

The perception that a gift comes with strings attached can do more harm to a store's reputation than it's worth. Fees are the major reason that bank and mall gift cards claim only 21 percent of the market, according to New York-based marketing consultant WSL Strategic Retail. And retailers aren't likely to wait long for cards to be redeemed anyway: according to Stored Value Systems, a card provider based in Louisville, KY, 91 percent of adults who received holiday gift cards redeemed them by the end of February 2006.

Lastly, just like having a website is a sign of keeping up with the times, having a gift card program shows that a retailer is culturally up to speed. Not offering gift cards may contribute to the perception that a retailer is out-of-date or unresponsive to consumer preferences — and such a perception could cost more than just gift certificate sales.

In addition to being more convenient and portable for consumers, gift cards' handiness makes for easier merchandising within the store. And unlike certificates, today's gift cards are worthless until they are activated, so stores don't have to worry about security.

“Retailers who switch from a paper certificate program to a gift card program will see increased sales due to the ability to merchandise gift cards around the store, increasing impulse buys,” says Jill Perlstein, director of marketing for the ABA.

Most stores keep gift cards near the cash wrap. But Annette MacAvoy says that's a mistake. “That's an unfortunate place to put [cards],” she says. “It's the most unpleasant part of shopping.”

Rather, gift cards should be merchandised throughout the store, making them part of the overall shopping experience, on par with any other gift. MacAvoy suggests merging gift cards into displays, such as a row of t-shirts with a gift card tucked into every pocket. Bookstores have had good results with cards displayed in holders originally intended for photos or recipes. Instead of the actual cards, Kate's Paperie stores use a hanging, three-sided sign to promote gift cards. Visible from every angle, the sign serves as an effective reminder without using up any square footage.

MacEvoy also suggests giving low-denomination cards as add-ons or as thank-you gifts to encourage return shoppers. A gift card sent to local businesses with a suggestion that they use them for corporate gifting can also yield big dividends, as can offering in-centives to staff for reaching goals for card sales.

But promotion doesn't stop at the store's walls. “Many small retailers give to community charities. I tell them never give money, give a gift card,” says Gilpatrick, whose gift card ideas can be found at yourfantasticplastic.blogger.com.

The first thing independent retailers have to do is get the word out about their gift cards. “A lot of people don't believe that we have them,” says Melanie Nerenberg, “We have to push that. It's a way to compete with bigger retailers like Pottery Barn.”