By Paula Rosenblum, Managing Partner
12/11/2007
For the last several weeks, RSR analysts have been pondering (okay, obsessing) on gift cards and wondering why retailers love them. We know we’re just supposed to talk about the intersection of retailing and technology, but it’s part of our core belief system that to really “get” the value of technology for retailers, one really has to actually understand retailing… deeply. As a result, sometimes we digress. We go shopping, we look at labels, and we ponder the implications of non-technology related subjects – like gift cards.
Finally, a couple of weeks ago, we published a piece asking for YOUR input. As always, your feedback was valuable, and I personally, have learned to stop worrying about gift cards and appreciate their finer points. Following are a sampling of your responses:
More Reasons Why Retailers Love Gift cards:
· Seasonal Sales Peaks are Smoothing Out Anyway – more than one of you pointed out, both in our blog, and in private e-mails, that seasonal peaks are smoothing out. Certainly this is different than long-time retailers are accustomed to, but the truth is, that doesn’t make it a bad thing. The old patterns of “back to school,” Easter, “holiday” and “summer” are changing. More people have moved to the Sunbelt, color and fabric rules have changed, and now, thanks to gift cards, people will now go shopping in January. There are worse things from a labor scheduling and merchandise flow perspective than smoother seasonal sales patterns. In fact, in a conference call presentation hosted by Deborah Weinswig of Citigroup, and given by Mike Niemira, Chief Economist of the International Council of Shopping Centers (ICSC ), Mr. Niemira pointed out that seasonal sales have been flattening out for several years now. He also noted that gift cards are expected to account for 18-20% of consumer holiday spending this year. That’s a lot of gift cards!
· More Gift Cards = Fewer Returns – We were concerned about the labor requirements for a January selling season, but at least one retailer and one vendor noted that it’s far easier to sell fresh merchandise than it is to process returns and make the items ready for sale again. For apparel, returns may require nothing more than re-hanging, or could require sending out to a dry cleaner. Electronics may be re-boxed, or end up in a “refurbished” bin. Stores are designed and laid out so that they can sell more merchandise, not process returns. I had to agree – nothing is worse for the customer or the retailer than long lines of grouchy customers waiting to return unwanted gifts.
· People Buy Gift Cards for Stores they would be Unlikely to Buy Gifts From – while some of us may receive gift baskets of fruits, nuts and sausages, for the most part, it’s rare to get a bag of groceries from your local supermarket. Yet gift cards for these very stores have become part of the landscape.
· Retailers can get New Customers without Advertising – We often buy gifts that suit our own tastes rather than the known tastes of the recipient. A gift card to one of the giver’s favorite stores could represent a first visit to that store from the recipient.
· Even though the Holiday Season Extends into January it Still Stays in the Same Fiscal Year – if we assume that much of the redemption of holiday gift cards is in January, the revenue associated with those gift cards only shifts a month….still within the same fiscal year. This is not so terrible. An easily understandable shift, with marginal impact on the annual P&L statement.
· Using OPM for Working Capital – I still don’t buy this one, but enough people have mentioned it that I would be remiss if I didn’t add it in. Cash comes to the retailer BEFORE a sale takes place. Therefore, the retailer can use OPM (otherwise known as Other People’s Money) for current payables.
To be fair, some other reasons NOT to like gift cards also came up. As above, we would be remiss to not mention them:
· The human touch is lost – gift cards are incredibly impersonal. They show marginal effort on the part of the gift giver, or so the theory goes. We already live in a very isolated age.
· Escheatment laws vary from state to state, and can be a real pain – This is one area where technology can help. Escheatment laws determine when unclaimed funds must be turned over to the state. These laws are not consistent nation-wide, and are enforced with varying strictness across the country. A good technology solution for gift card management should include definitions of these laws, and the ability to trigger automatic notification to appropriate states.
The net is, thanks to you, I’ve learned to stop worrying, and love the gift card bomb. I hope we can continue sharing retail wisdom with each other and watch our industry transform in the 21st century.
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