By Pat Pape
Although the nation’s economy remains addled, American shoppers continue to spend their money on gift cards.
That’s the latest word from the National Research Network, a Chicago-based research firm, which released a report in April on gift card trends. The Hartman Group, a Bellevue, Washington, consulting company, also contributed. According to the report, 57 percent of consumers say they purchased at least one gift card within the past year, a jump of 5 percent from October 2008 — despite the nation’s dramatic economic slowdown. However, recent gift cards had a slightly lower average face value — $46 — when compared with the $52-average value of cards sold between September 2007 and August 2008.
Despite protests from etiquette mavens (Judith Martin, the nationwide news columnist known as “Miss Manners,” abhors them), gift cards have become a practical and accepted form of gift-giving, making shopping easy and convenient for the gift-giver and allowing the recipient to select an item they truly want.
Many convenience chains offer a cornucopia of gift cards, ranging from retail shops to spas to restaurants, including the open-loop or open-system gift cards from Visa, American Express and MasterCard, which can be redeemed anywhere those credit cards are accepted. Open-loop gift cards are used much like a debit card except that the holder does not need to have a checking account.
Some chains also sell their own branded card, which are dubbed “closed cards” since they are accepted by a single retailer. Most major convenience operators, such as Rutter’s, Sheetz, Flash Foods, Circle K and 7-Eleven, sell branded cards because the cards are convenient to use, give the company increased exposure and encourage repeat customer visits.
The Spinx Company of Greenville, South Carolina, which operates more than 75 convenience stores in North and South Carolina, sells a variety of pre-paid cards and also offers a branded Spinx Gift Card, which “has done very well for us,” said Bryan Zeiger, company spokesman. “We get a good amount of bulk orders from companies rewarding their employees or having contests. A majority of our Spinx gift cards are used to make fuel purchases.”
Nice N Easy Grocery Shoppes Inc., the Canastota, New York-based chain with almost 100 locations, launched its branded gift card in time for the 2008 holiday season, and the investment has paid off, according to Matt Paduano, vice president of information at Nice N Easy.
“May 2009 was actually our best month since December,” Paduano said of the branded cards, speculating that many of them went to recent graduates. According to research funded by the National Retail Federation, 29.4 percent of Americans were expected to give gift cards as graduation presents this year, a figure down from 32.2 percent in 2008.
The NRF also predicted that the public would spend $1.2 billion on gift cards for Father’s Day this year.
Like everything else, gift cards are taking to the Internet. CashStar, a Portland, Maine-based company that launched earlier this year, is managing online gift cards for a number of well-known retailers, including Uno pizza restaurants and CVS drug stores. The cards can be ordered online from the retailer’s Web site, paid for with a credit card and e-mailed to the gift recipient.
“We call it an e-gift,” said David Stone, CEO of CashStar, adding that the retailer receives a gift as well: two e-mail addresses that can be used later for marketing purposes, such as e-mail blasts.
When the recipient receives the e-mail, the gift card can be printed out on paper and redeemed at the appropriate store. Each gift card has a bar code that allows it to be used once, much like an airline-boarding pass that’s been e-mailed to a traveler. As a bonus, the cards can be personalized with a custom message and the recipient’s name. “If you are going to a birthday party and you forgot to get a gift, you can actually print it out on your own printer and take it with you,” Stone said.
In the case of Uno, the pizza chain, the gift-giver can download a personal photo onto the card. “People send gift cards with pictures of themselves, their vacation, their dog,” he said.
And Stone believes that his company’s printable cards have a leg up on the average plastic card. “Eighty-five percent of all gift cards are used once and then tossed. They end up in a landfill,” he said, adding that most consumers would prefer a paper card that can be put in a recycle bin. “We believe that over time, about 30 percent of all gift cards will be in this format,” he said.
While not common, a few single-store retailers operate their own branded gift card program.
According to Jim Contardi, general manager of pre-paid for First Data, a global provider of merchant services based in Denver, Colorado, such a program is possible as long as the retailer has the appropriate technology to permit activation and reloading of the cards. “You need to be able to connect to an issuing server, a gateway connection or switch,” he said. “We use Buypass, which is a gateway system.”
Any retailer who is interested in offering branded cards should contact the sales representative for the store’s current credit card program. “They must align themselves with someone who offers connectivity,” Contardi advised.
In a typical branded card program, the retailer pays for the plastic card stock and a fee for each transaction, and First Data thinks the service is worth the expense. “What makes a load-able product interesting to convenience stores is not only the opportunity to make a sale but also the possibility that the customer will buy something besides the card [while in the store] and then come back later to reload the card,” said Contardi. “And it’s a convenient purchase, which is why you see gift cards in high-traffic places like the front of the store.”
As for earth-friendly concerns about tossing used petroleum-based plastic cards into a landfill, First Data has already taken a stab at that problem. Working with Walmart, the company recently made gift cards from biodegradable products, such as corn and sugar cane. The concept was recognized at the annual awards ceremony produced by Paybefore magazine, which provides information to the branded, prepaid and stored value card industry.
Eventually, consumers may end up buying gift cards that do not involve any card at all. Contardi predicts that a few years down the road consumers will be carrying special chips in their mobile phones that will allow them to pay for a purchase at the point-of-sale with a simple phone swipe past a specially designed reader. “Japan and Korea are already doing that,” he said, noting that it has not yet happened in the United States due to the lack of uniformity in U.S. technology.
However, technology continues to make advances that are affecting the U.S. pre-paid industry. In June, Sheetz, the Altoona, Pennsylvania-based convenience retailer, announced that its stores will be using First Data’s GO-Tag, a solution the First Data Web site describes as an ideal payment solution “for businesses that have a high volume of low-dollar transactions, such as quick service restaurants, coffee shops, grocery stores, gas stations, convenience stores and discount retailers.”
Although GO-Tag is available as both a fob and a wristband, Sheetz will use the sticker format. Customers simply buy their open-loop, reloadable, prepaid sticker at a Sheetz store, attach the sticker to a personal item, such as a mobile phone, and then pay for purchases by tapping the sticker on a contactless reader at checkout. Sheetz begins selling the stickers at its 350 locations in Pennsylvania, West Virginia, Maryland, Virginia, Ohio and North Carolina this summer.
As the pre-paid industry continues to grow, pre-paid solutions will become more creative and easier to use.
“The pre-paid market has generally held up pretty well despite the recent economic turmoil,” Contardi said. “People who can’t or don’t want to use credit cards need an alternate form of payment, and that’s helping to feed the strength of the business.”
Pat Pape worked in the convenience store industry for more than 20 years before becoming a full-time writer.