TALKING GRAPE
FRUITS, THINKING GRISHAM
Gift Cards Break
Boundaries and Emerge as the New Consumer Currency of
Choice
FROM PUBLISHING TRENDS (APRIL
2005)
This
summer, when the sweltering (remember?) sun drives you
into Key Food for a sixpack, stop by
the CoinStar on your way out, pop in
your pennies and watch the new Harry Potter
pop out. The little green machine recently announced
that consumers will soon be able to receive gift cards
in exchange for their change, including gift cards to
bookstores.
Not since Barbie
has such a small piece of plastic caused such a large
amount of hoopla. According to the National
Retail Federation, gift card sales reached
$55 billion last year, with $17.3 billion being spent
in the holiday season alone. Nearly 75% of all shoppers
bought at least one gift card during the holidays, and
the average gift card buyer bought 3.2, up 20% from
the year before. What's more, by the end of last year,
over 80% of all American adults had received at least
one gift card, with 90% of them classifying their gift
card experience as "very positive."
But while gift
cards are rapidly emerging as the pre-payment option
of choice, accounting is struggling to keep up - trying
to figure out what they are and where to record them.
As it stands, until the cards are redeemed, retailers
record gift card sales as liability, and not revenue.
Since gift cards sold during November and December are
usually cashed in during January, accounting is helping
to bolster an otherwise sluggish month for retailers.
But card recovery is never complete, and by the end
of January of this year only 61% of gift cards sold
during the 2004 holiday season had been used, leaving
an estimated $9 billion floating on unused cards. The
cards, on average, have a non redemption rating of 16%,
according to a Nielsen Report, which
many (mistakenly) assume to mean an extra cushion for
retailers. Unlike the UK, where gift cards were born
(see below), unspent amounts remain a liability, and
are therefore subject to escheat laws that allow states
to claim that liability as "unclaimed property"
for themselves. As a result, retailers are focusing
on getting customers to redeem the card, even as they
extend unlimited expiration dates. When they finally
do, it often takes two store visits, and consumers overspend
the card's face value by 40%.
Independents
Get Creative
In the world
of gift cards, "booksellers have been as successful
if not more so in terms of merchandising," said
Daniel Horne, retail and marketing
professor at Providence College, commonly
referred to as the "Gift Card Guru" for his
continued involvement in the field. Although, mega-retailers
Barnes & Noble and Borders
come immediately to mind at the mention of gift cards,
it is actually the little guy who is doing the most
innovation as of late.
Established
in October 2003, the American Booksellers Association's
Book Sense gift card program -- which
now has more than 300 stores participating in the program
and saw sales increase by 256% last December over December
2003 - is emerging as a front runner in developing new
ways to sell, market and promote gift cards, including
innovative display ideas, flashy packaging, and publisher
promotional deals. Working with publishers was "something
we always had in mind," Jill Perlstein,
Director of Marketing at ABA, said. "We try to
work with the publisher to find something that's going
to benefit everybody." In the first of such deals,
Book Sense created a gift card that displayed a William
Faulkner quote (as well as Vintage's
logo) in honor of their 25th anniversary. Earlier this
year, another more complex campaign involved a promotion
from Hyperion in which gift cards emblazoned
with the title and jacket art of its new book, Cecelia
Ahern's PS, I Love You were given free of charge
to the ABA for distribution in their member stores before
Valentine's Day. The ABA then handed them out, but left
the stores to decide what they wanted to do with them.
Harry W. SchwartzBookshops, in Wisconsin,
elaborated on the Hyperion promotion by loading $3 onto
the PS, I Love You card and offering it as a gift to
customers who purchased the title, as well as those
who purchased other Cecelia Ahern books.
"We're
always talking to everybody," Perlstein said. "Basically
we throw the deal out to everybody and see who's interested."
Other promotion deals include one with Random
House, which is issuing a display to each store,
and "Greetings from Mitford" cards which feature
pictures from Jan Karon's books Shepherds
Abiding and Mitford Cookbook and Kitchen Reader (Viking/Penguin).
Large chains such as Barnes & Noble and Borders
also have a variety of both licensed character gift
cards (such as the B&N Eloise card)
and single title deals (such as the Border's Polar Express
card). Although Book Sense cards are currently only
dealing with specific promotions, like the recent Hyperion
deal, Perlstein says that she thinks the ABA will soon
be branching out, "working with publishers to come
up with cards that are occasion specific rather than
a specific title so that they can have more shelf life."
And the gift card push isn't confined to in-store activity
alone. "Booksellers are using them as a way to
get their name out," said Perlstein, citing an
anecdote about an ABA member who handed out gift cards
loaded with $5 on them at a Chamber of Commerce meeting,
rather than business cards. "It gets the people
into the stores, and they're almost always going to
spend more than what's on the card."
From
Milliners to Mega Stores
Gift Card Guru
Horne places the inception of the gift certificate (paper
sister to the gift card) around the beginning of the
last century, when it was used by milliners like Stetson.
The first comprehensive and sweeping national certificate
campaign began in 1932 with the Booksellers
Association's development of book tokens in
the UK. The tokens, stamps in actuality, were affixed
to a paper card at purchase, and could be redeemed indefinitely
by the holder in a variety of different BA stores throughout
the UK and Ireland. The national multi-vendor voucher
program (which made the switch from stamps to paper
certificates in 1997) is still in place today, often
running alongside its more successful, modern equivalent:
the plastic, stored-value gift card booming at international
retailers such as Borders.
Although surpassed
in sales, book tokens retain an important place in the
voucher community, representing open-system cards that
are redeemable with a variety of vendors. Stuart
Matthews, Managing Director of Book
Tokens Ltd., explained that when a book token
is sold, the bookshop pays 87.5% of the token's face
value to the National Book Tokens (NBT)
where a "liability" is created in order to
cover the cost expended by the exchanging store. The
remaining 12.5% is considered a "sales commission"
of sorts that goes to both the original bookseller for
driving the sale, and to the NBT for making the transaction.
In an interesting
turn of events, Sainsbury's (the UK
chain that now sells books in about 350 of its 721 stores)
recently became the first supermarket to join the Booksellers
Association. Sainsbury's hasn't begun selling book tokens
to date, but Publishing News notes that if
book tokens are eventually sold at Sainsbury's, "it
will be a considerable boost for all bookshops, since
the vast majority of book tokens bought in Tesco or
Sainsbury's are unlikely to be redeemed in supermarkets."
Matthews agreed adding, "If they did agree to sell,
then I would be very pleased, for they would, in my
view, start selling NBTs to persons who might not normally
visit bookshops, thereby expanding the number of NBTs
in circulation" - an interesting multi-vendor structure
in which Sainsbury's would receive, in essence, a commission
for driving consumers into traditional bookstores.
Although supermarkets
in the US are yet to be granted access into the ABA
(and no one is holding their breath), they similarly
act as shopping shepherds by selling the gift cards
of a variety of vendors, including bookstores. Last
fall, Barnes & Noble signed with Safeway,
allowing their gift cards to be sold in stores such
as A&P, Stop & Shop,
Lowes, and Price Chopper
among others, as well as in CVS, Eckerd
Drugs and Radio Shack.
With a torrent
of cross-marketing channels emerging, the opportunities
for multi-venue gift card deals seem endless.
Surveys show
that consumers are spending more while shopping at fewer
stores, and with shoppers now seeking out gift cards
as first-choice gifts rather than as last-minute fillers,
consumers are going to places like CVS for the express
purpose of buying gift cards to stores like Barnes &
Noble. And although most of the cards being sold in
multi-venue locations are big-name retailers such as
Barnes & Noble, Blockbuster and
Home Depot, others, such as Virgin
and Napster music download gift cards,
are starting to break into the scene as well. To give
gift card recipients even further choice, Safeway stores
also offer the "My Choice Card" which is exchangeable
for any of the cards that Safeway carries.
Selling gift
cards in kiosks and check-out aisles won't be the end
of it, either. "I wouldn't be surprised to see
boxes of Apple Jacks having a Barnes
& Noble gift card in them," Horne remarked.
Good
Job. Have a Gift Card.
"People
will continue to come up with innovations as to how
to merchandise [gift cards]," Horne said. "B2B
sales, reward and recognition programs, [for example]
Borders will partner with an incentive company - say
a UPS driver doesn't get in an accident
for 100,000 miles, maybe he gets a gift card for a $100."
Indeed, in
a study commissioned by ValueLink last
year, it was found that 40% of the 460 corporate incentive
program decision makers interviewed said that they used
gift certificates as incentive items in the last year,
second only to cash. Companies can either use their
own cards (e.g. Barnes & Noble giving an employee
a Barnes & Noble card), or others (Sephora
giving their company a Borders card). And whereas cash
incentives have to be reported, gift card sales do not
(necessarily), which makes incentives difficult to track,
although it is estimated that the incentive industry
pulls in about $30 billion a year.
Numerous B2B
incentive programs have cropped up as advertising schemes
and marketing deals as well, with Penguin recently offering
a $250 salon-of-your-choice gift card to the winner
of a contest revolving around their new book So Super
Starry by Rose Wilkins. Schools also
use gift cards as incentives, as well as for fundraising
and charity opportunities. The Scrips
program, for example, generates money for schools when
they buy scrip (or negotiable gift cards) from retailers
(such as Barnes & Noble and Borders) at a discounted
price, and then resell the cards to students and parents
at face value to raise the percentage difference. Scholastic
Book Fair Gift Cards have cropped up to target kids
whose parents cannot attend book fairs. And in higher
education, many college stores (including both independents
and Barnes & Noble affiliates) now offer gift cards
as well.
Another phenomenon
in plastic pre-payment, open-system cards, are co-branded
credit cards like the Borders and Waldenbooks
Platinum Visa card that uses a gift card as well as
reward points in order to draw people into buying it.
When purchased, the customer automatically receives
a $20 gift card redeemable at Borders and Waldenbooks,
and subsequent $5 store rewards certificates (exchangeable
for merchandise in the same stores) for every 500 points
collected - with double the points being received when
the card is used in either Borders or Waldenbooks.
Now that gift
cards are ubiquitous, retailers are looking for ways
to encourage long-term gift card use in order to more
thoroughly exploit direct marketing advantages of being
able to track customer spending (such as where and when
a specific title was purchased).
Some merchants
offer reload incentives, such as increased stored-value,
when customers refill their gift cards - (e.g. registering
a $60 reload as $70), and advertising campaigns are
now specifically aiming at gift card holders to drive
up redemption rates.
"I
think that they'll continue to stretch these products
out into all kinds of incentives. There's still another
good 10 years in it, and who knows what technology will
bring next," said Horne.
©2005
Publishing Trends
