Gift Cards: Another profit stream
March 31, 2003
Filed under Uncategorized
No doubt there was at least one gift card offered by a national credit card company under your family’s Christmas tree, if national statistics can be believed. It’s the latest trend in retailing since stores began offering prepaid plastic cards, according to a recent report in the Wall Street Journal newspaper, and something you might consider at your dealership, especially if you run a non-franchise operation.
Industry analysts pegged the sales of store cards — from $25 cards at Barnes & Noble to $1,000 cards at Neiman Marcus Group stores — last year at close to $38 billion, according to the Journal report. That’s up about 20% from the previous year. One study says that consumers purchased an average of 4.6 cards per person last year, up from 4.1 the previous year.
And they’re spending more: an average value of $50 per card, compared to $44 in 2001.
Now, American Express, Visa and MasterCard are offering their own versions of the store gift card. That’s especially nice for those of you who don’t carry a franchise line; you can take advantage of this marketing opportunity as long as you accept the offering card. Obviously, it’s better for you if you have your own store card because this drives traffic only to your store. But in case you don’t, you might want to check with your card processor to see what type of program it is offering.
One final note: In addition to helping those shoppers who just can’t decide on a purchase, gift cards have the same hidden benefit for retailers that gift certificates carry. Consumers rarely make a purchase for the exact amount of the card. Sometimes they’ll add to the amount of the gift and often they’ll spend less and never use the remaining small credit. And according to one estimate, roughly 10% of gift cards are never redeemed at all.
Gift cards, like most gift certificates have expiration dates. Combine the expiration factor with the fact that most consumers don’t spend the entire value of the card, and you have a balance you can take to the bank. Some states are trying to limit the use of gift cards, especially the expiration dates. According to testimony in Ohio, one consumer said, for example, that he used only $20 of a $50 video store gift card before it expired seven months later.
It’s also interesting to note that credit card companies charge consumers hefty fees to purchase gift cards plus monthly fees if the card is not used. For example, Bank of America’s Visa card with a value of $25 to $600 costs $5.95 to $11.95. The card expires in one year and the cardholder is charged an additional monthly fee of $2.50 if the card is not used up in the first six months.Ya gotta love those friendly bankers.
In addition to the usual news stories you’ve come to expect from Powersports Business, there are two pieces that are a bit unusual. Both are in the Aftermarket Section. One is written by Hal Ethington, the statistics guru from ProQuest, who will write for us eight times this year. Hal is in the process of analyzing retail sales per square footage and evaluating the success dealers are having selling accessories based upon the amount of floor space they devote to these products. His analysis is surprising.
Also, new this issue is a column written by Kurt Finley, a partner in a chain of Colorado powersports dealerships. You’ll see Kurt’s byline several times this year. Kurt writes about typical problems facing the average (is there such a thing?) dealer. This time he talks with other dealers across the country about store hours. I think you’ll find his report very interesting.