THE VALUE OF GIFT CARDS
Byline: Michael Hickins
NEW YORK — Retailers are using gift cards, also known as stored value cards, to revitalize the moribund gift certificate business.
Although gift certificates represent only 1 percent to 2 percent of sales for most retailers, many see a huge upside in that niche and also consider gift cards a way to drive up margins.
For a variety of reasons, ranging from technological to esthetic, retailers are discovering that gift cards, as opposed to paper certificates, have greater value in the eyes of the beholder — and the retailer, too. Cards are less ephemeral, they don’t tear or bend as easily as paper certificates and they fit conveniently inside a wallet. They can also wear a design, reflecting the image or logo of the retailer, and can store all kinds of useful information.
For instance, at luxury retailer Chanel, Michele Cerwin, executive director of marketing for the fashion division, said the use of gift cards tripled gift certificate sales during the 1998 holiday season, compared with 1997.
This year, Chanel is featuring a limited edition (2000 print run) Year 2000 gift card valued at $2,000. “Last year, we made gift cards the convenient and chic gift to give,” said Cerwin. “This year, we’re presenting it as the ultimate millennium gift.”
The card comes bundled with free luxury services, such as an hour with a wardrobe consultant, a makeover, invitations to local boutique events, alterations and complementary shipping.
“We’re using the card to position the Chanel gift as more than just a figure; it’s a luxury experience,” said Cerwin.
Chanel has used the card to learn more about its customers, their buying habits and the buying habits of their friends and relatives. The added services that come with cards give the retailer information about the recipients of gift cards, not just the original buyers. Chanel also learned that customers typically spend 30 percent more than the value of their gift cards, which Cerwin said Chanel would not have known with paper certificates.
Gift cards have also begun to drive corporate sales, where retailers see a significant upside. According to Stephanie Stern, corporate sales manager for Brooks Bros., gift certificates are the linchpin of many corporate incentive programs and run second to cash as the most popular way of rewarding employees.
Stern, who attended a press breakfast held for GiftCertificates.com at Chanel headquarters last month, explained that gift cards are an integral part of Brooks Bros.’ strategy to revitalize gift certificate sales. “We’ve had a threefold increase in corporate sales over the past 12 months, and that was driven mostly by gift cards,” she said.
Gift cards help The Sharper Image, based in San Francisco, differentiate between consumer and business-to-business sales. According to Roger Bensinger, vice president of business development, Sharper Image has just launched two gift cards — one for consumers and a corporate card. The corporate card allows business buyers to buy in bulk at a discount. Bensinger said, “We want our store associates to recognize the different kinds of cards and offer different levels of service.” Corporate sales were strong, “10 times that of consumer sales,” said Bensinger.
For retailers, the gift certificate business has been something of a nuisance, a service they had to provide. But it’s poised to become a high-margin service, and services like those provided by GiftCertificates.com eliminate many back-end hassles.
“We take the load off the retailers in terms of handling cash and cash equivalents, security, fulfillment and reconciliation,” said Louis Berman, chief technology officer for GiftCertificates.com.
Gift certificates for both Sharper Image and Brooks Bros. have been available through GiftCertificates.com since late last year. Bensinger noted that the online gift certificate merchant has not only improved gift certificate sales in that period, but helped drive new customers to the sharperimage.com Web site.
“We believe this relationship will drive incremental visits to our site as well as our catalog and our stores,” he said.
Chanel, which does not have an e-commerce site, has made its card available on GiftCertificates.com since September. “We expect the site to help us sustain the same kind of growth in gift certificate sales as we saw last year,” she said.