How Some Retailers Have Bolstered Their Gift Cards’ Firepower

Closed-loop gift cards are not the new kids on the block any more, but some retailers in 2008's holiday shopping season found ways to wring more usage out of their cards despite the faltering economy and bad press about gift cards. That's the word from a newly released market assessment from Linthicum, Md.-based First Annapolis Consulting Inc. First Annapolis researchers bought, used, and otherwise monitored gift cards from 35 national retailers in their stores and online for the study. Partner John Grund tells Digital Transactions News the project was not meant to produce statistical inferences so much as to give some guidance about the growth possibilities for a product that appeared more than a decade ago. “We were really trying to identify the next natural evolution of gift cards,” Grund says. That evolution may include combining more technology with gift cards in an effort to boost sales, as electronics retailer Best Buy Inc. did in a package that paired a gift card with a speaker device for MP3 music players. True audiophiles might not have been impressed, but the idea “is a novelty,” Grund says. Other retailers tied gift cards to loyalty programs. Sears Canada Inc., for instance, offered instant redemptions of Sears Club Points on its cobranded MasterCard or private-label card (both issued in Canada by JPMorgan Chase & Co.) in exchange for gift cards in the store. “That's something that under the right circumstances could add additional power or oomph to a gift card,” says Grund. Under its PowerPump Gas Rewards program, supermarket chain Safeway Inc. doubled the number of rewards points shoppers normally would earn with a gift card purchase. The points are redeemable at Safeway fuel pumps. Still other companies, notably Apple Inc., made gift cards available in lower-cost packages. Apple offered its popular iTunes gift card in a three-pack of $10 cards. Such a combo is “probably attractive to the stocking-stuffer crowd,” Grund says. And some retailers linked charitable causes to gift cards. Grund describes the efforts of those retailers and others as “enhancements around the edge now.” He notes that gift cards faced tough going in the 2008 holiday season because of the weak economy and press reports about the risk of losing funds on gift cards from failed retailers. But even without those headwinds, closed-loop gift cards have tapped most of their mass-market opportunities. Consumer awareness of them is very high, in the 90% range, and usage also is very high, according to Grund. “The moral of the story is it's a maturing market,” he says. Two of the biggest closed-loop gift card growth opportunities can be found in third-party distribution of other retailers' cards, as Safeway and others do, and business-to-business settings, Grund notes. He says Starbucks Corp. is still getting strong results from its gift card, which many businesses give as gifts but also is used by consumers as a prepaid payment card. In a 2007 report, Aite Group LLC estimated the value of private-label prepaid transactions would hit $99 billion in 2010, with a compound annual growth rate of 8% between 2006 and 2010 (Digital Transactions News, July 23, 2007).