We’ve all seen them, maybe even used them. They are plastic and they have the name of a store or restaurant or even a mall on them. Gift Cards have taken the world by storm. For decades gift givers have spent hours shopping for ‘that perfect gift’ only to discover that the recipient went back to the store and returned or exchanged the item. Retailers hated it because they had all of these open packages and consumers hated the wasted time and recipients felt guilty about the returns. The first idea was paper gift certificates. It was a good idea but it sometimes created bookkeeping headaches as people worked down the value over time.
Ultimately, the Gift Card was born. In it’s simplest form it is a pre-paid debit card. You swipe the card through the reader and everything is fine. Obviously, the cards and the transactions cost money so what is the advantage to you, the merchant?
A survey by the U.S. National Retail Federation last year suggested that eight out of 10 people would include gift cards among their holiday shopping purchases. The main reason: convenience. In other words, if you don’t offer them, then your competition is probably going to snag some of that business, However, it gets better. Statistics indicate that between 25% and 40% of all gift cards are never redeemed. Even when the cards are redeemed, typically the consumer will spend more than the face value of the card; up to twice the original value. One reason found in a study by the J.C. Williams Group was that 40 per cent of shoppers using a retailer’s card bought items at full price. Only 16 per cent of shoppers using other payment methods bought at full price.
So, reduced returns, use of the money, non-redeemed cards, and more full price sales. There is plenty of good news for the merchant.
However, as I am always interested in full disclosure, there are some down sides to the merchant. First, the cards can cost from around $1.00 to more than $3.00 each depending on the level of customization and the quantity being purchased. There are sometimes setup/implementation costs. Finally, there is either a monthly maintenance cost or a per transaction cost. I recently set up a small computer/electronics retailer with a gift card progam that came with 100 Gift cards with a stock print and his company name on the front. His total cost was $75 for the setup and he pays a flat $30 per month with no fee per transaction. He expects to sell the cards with a minimum of $50 on each card. If he sells 100 cards at an average of $50 each that will result in cash of $5000. If even 10% are not redeemed (which is below the 25%-40% industry range), he will have more than covered his costs. He expects that the additional business and visibility created by having the cards being given as gifts will help build his business as well.
Gift cards aren’t for everyone but they can be a nice revenue and cash flow boost for the right kind of business.
If you want more information on gift cards, feel free to drop me a line.
Michael
Tags: credit cards, Gift Cards, merchant services, retail, shopping
