Sales of gift cards are soaring. In 2007, U.S. shoppers spent $97 billion on gift cards, an increase of nearly 17 percent from the previous year.
For retailers, gift cards have distinct advantages. They’re far more popular than the old paper gift certificates. When redeeming them, shoppers spend an average of 1.4 times the amount on the card. Plus, about 10 percent of the total value of gift cards goes unused every year, netting retailers billions of dollars. (Some states are beginning to claim a portion of this unclaimed property.)
Unfortunately, most of the spending on gift cards is flowing to chain retailers, many of which not only sell their own cards, but market those of dozens of other chains in large gift card racks at the front of the store.
A growing number of independent retailers are offering their own gift cards now too, but the key to shifting a substantial share of this activity to the local economy may lie in developing gift cards that work at many local businesses, rather than just one.
Some local business alliances are beginning to move in this direction.
With the help of a local bank, Dane County Buy Local in Madison, Wisconsin, issued 300 Buy Local gift cards in November and December that can be redeemed at any of the alliance’s 220 member businesses.
“They sold out in the first few weeks, and another batch had to be ordered,” said Rick Brooks, co-founder of Dane County Buy Local. Although the total value of the cards sold — about $14,000 — is modest relative to overall gift card sales in the region, for a new initiative, it was an encouraging first response.
Brooks brought the idea back from a Business Alliance for Local Living Economies conference and turned to Jim Bradley, president of Home Savings Bank, to help develop it.
Home Savings Bank, a customer-owned community bank that has been making loans to local businesses since 1895, was eager to be a partner on the initiative. “We live here, and we lend here, so the quality of the [business] environment is critical,” explained Bradley.
Although branded with Dane County Buy Local’s name and slogan, the cards are basically Visa gift cards, meaning they work anywhere Visa is accepted. The cards are embossed with “Buy Local Gift Card” and “DaneBuyLocal.com,” and are sold in sleeves that feature the campaign’s logo and a list of the member businesses.
They can be purchased at any of Home Savings Bank’s five locations in amounts ranging from $25 to $250.
According to Bradley, it took about 60 days to implement the idea, from purchasing the cards in bulk to designing the displays and training the staff.
Dane County’s independent business owners are pleased with the results so far.
“The Buy Local Gift Card is a great idea, and one that will give gift-buyers a new option for supporting independent businesses,” said Carol Schroeder, owner of the specialty gift store Orange Tree Imports.
Local retailers note that the card has significant advantages. It gives the recipient a much broader range of spending options than a gift card for a single chain, and it keeps the dollars circulating within the community.
Dane County Buy Local was founded in 2004 and is a project of Wisconsin Partners for Sustainability. Currently the campaign has 220 members, with over 90 businesses joining since 2006. It’s an all-volunteer effort.
To join, a business must be located in Dane County, be at least 51 percent locally owned, and retain local control over purchasing and other decisions. Annual dues range from $50 to $200, depending on the number of employees.
Members believe the campaign has helped shift some spending from chains to independents. “Sales are up significantly over last year,” said Susan Sheldon, owner of A Greater Gift, who attributes some of the increase to the campaign’s influence.
Although it’s too soon to tell, she expects the gift card will increase the campaign’s impact. So far, only regular customers have redeemed the cards at her store, but Sheldon hopes “that they in turn will purchase cards for those who might not be familiar with the [Buy Local] program and our store.”
A Locals-Only Gift Card
Perhaps the next evolution for local business alliances will be the development of a gift card that works only at local independent businesses, is sold at hundreds of stores, and has terms and merchant fees set by the alliance, not Visa.
One possible model and source of inspiration is the Book Sense Gift Card, which was launched in 2003 by the American Booksellers Association, a trade association of some 1,200 independent bookstores.
A Book Sense Gift Card can be purchased or redeemed at any of 400 participating bookstores. So far, these stores have sold $35 million in cards. Most are redeemed at the same store they were purchased at; a small but steady fraction are given to people who spend them at bookstores in other communities.
The cards cost more than paper gift certificates — participating bookstores pay $20 a month, plus about 80 cents per card for the card itself and its activation — but bookstore owners say it’s worth the cost.
Peter Schertz, co-owner of Maria’s Bookshop in Durango, Colorado, said he saw a huge increase in sales when he switched from gift certificates to gift cards. During the 2007 holiday season, Maria’s sold 1,200 Book Sense gift cards.
“I’m really into the efficiency of them. They’re compatible with our POS [point of sale] system, so you just swipe them at the counter,” Schertz said. “Before that we were doing paper certificates and tracking them was a mess.”
Plus, he added, it makes Maria’s Bookshop feel like a twenty-first-century operation. “When I go into a store now and they whip out a paper certificate and write it out, it just doesn’t feel modern,” he said.
Another possible model can be found in Chattanooga, Tennessee. The newly launched Buy It Downtown Gift Card also works only at qualifying businesses — in this case, those located in and around Chattanooga’s downtown. Almost all are locally owned businesses, but downtown chains are also allowed to participate.
The card, which was launched in December 2007, is a joint initiative of a private entity, Buy It Local LLC, and RiverCity Company, a nonprofit economic development organization. Participating businesses pay an annual fee of $300 to $700, with discounts given for small and locally owned stores, plus the cost of the cards and 2.5 percent of each gift card sale.
The program generated $16,000 in sales over the holiday season and has $150,000 in commitments for gift card purchases in 2008 by large downtown employers, according to Amy Walker Cherry, president of Buy It Local.