Retailers say gift cards make cents
Since the start of the 2000s, Ace, True Value and Do it Best have all started gift card programs, giving their members away to compete for consumer dollars during the holiday season and beyond.
A look at the numbers explains why these retailers want a piece of the action. Gift cards have become a major component of the retail economy, accounting for $97 billion in sales in 2007, up from $83 billion the previous year.
Ace’s program has been in place since 2001, and about 3,000 Ace retailers participate (all but the individually branded stores). Ace’s program works much like Best Buy’s or Home Depot’s; when a customer buys a gift card, it can be used at any Ace location across the United States, but not online.
“The store at which the card is redeemed is where the sale is realized,” says Becky Maloney, market intelligence/promotional manager for Ace. “It’s pretty much a wash on the front end—or where the card is sold.”
Even in a tough home improvement market, Ace’s gift card sales increased 17 percent in 2007 to about $13 million (the jump was about 30 percent over the previous year). The co-op also phased out its paper certificate program last year, focusing solely on gift cards going forward.
Ace gift cards can be worth anywhere from $5 to $250, with the average being in the $35 range.
“I think it provides another gift option for our customers, and we promote it that way,” Maloney said. “It’s a great tool for branding, and it’s reaching consumers industry-wide.”
Do it Best’s gift card program—in its fifth year—is not co-op-wide but is customized to the individual store.
“When we were setting up the program, members told us they wanted something that would continue to build the brand in their stores,” said Chris Hill, rental program manager for Do it Best. “The gift cards can have their name and logo on them. It’s a store-by-store program.”
Although there is no cross redemption from one Do it Best store to another, the cards can be redeemed online. The Do it Best Web address is written on each gift card for such instances.
Do it Best customers can purchase any denomination up to $2,500, but the average gift card value in 2007 was right around $50.
Twenty-five percent to 30 percent of Do it Best stores participate in the gift card program, and the co-op has seen 8 percent to 10 percent growth in dollar volume in each of the last three years. In addition, many stores issue gift cards for store credit on returned items if a customer does not have a receipt.
According to Hill, the biggest draw-back to the gift card program is that each state has its own set of laws, and it’s up to Do it Best to keep up on what’s happening legislatively.
Mostly, however, she considers the program a vast improvement over paper certificates, which had to be processed manually by the cashier.
“This is easier, and it’s pretty much a staple now,” Hill said. “People expect retailers to have them.”
True Value does not have an overarching, standardized gift card or certificate program. Instead, programs are managed and implemented at the store level, “providing each retailer the independence to meet their local customers’ needs,” the company said.
DeNault’s True Value, with seven locations in Southern California, started its gift card program last summer, with vp Bob DeNault ordering 1,000 gift cards at the start.
DeNault said there are certain negatives to the program, including the following: there are charges for the cards themselves as well as every time they’re used; customers sometimes disagree with balances and the cards can only be used at DeNaults’s even locations.
Still, he thinks the program offers a lot of potential for increasing sales in his store, particularly around the holidays.
“If a person doesn’t know what to get for someone, it makes a great gift,” DeNault said.