In the Trenches

WHY YOU SHOULD SELL GIFT CARDS

By Allen McBroom

Not too long ago, I was cleaning out a pile of papers in my home office, and I found several things I’d forgotten about, such as a photocopy of my FCC amateur radio license, some notes on some ideas that didn’t pan out, and an envelope with a gift card in it. The gift card was for a bookstore I rarely visit, but when I realized I had a $50 gift card, I made it a point within the next few days to saddle up and ride over there. I ended up spending about $80, and that gift card really took the sting out of paying at the register. Using the gift card was no problem at all, even though it was a couple of years old.

If you’re surprised that a $50 gift card almost went unredeemed until I rediscovered it, well, don’t be. Depending on whom you listen to, somewhere between 3 percent and 33 percent of all gift cards sold are never redeemed by the card recipient. No matter which percentage is most accurate, the point is some gift cards never get used. For retailers, that’s good news. Maybe 3 percent doesn’t sound like much, but if you’re selling a lot of gift cards, that could amount to a significant amount of cash.

If you’re not pushing gift cards, you’re missing the boat.

Gift cards are easy to sell and getting easier to sell every year. They are a real solution for people who are hard to buy for. And every time you sell one, there’s a chance it may not get redeemed — or, a more likely scenario, it may be only partially redeemed. The recipient may use it to pay for some gear in your store, and then forget about the card, or forget that it has a balance and toss it, or maybe even lose it. Each of those situations increases your profit margin on gift cards.

There are multitudes of ways to sell gift cards, ranging from making your own certificates at the copy shop to using plastic gift cards that can be swiped. But no matter what format your store’s gift cards take, you need to be pushing them as a major inventory item.

Our store has been using Square card processing for several years, and Square has a cool system for handling gift cards. First, you can offer plastic gift cards that you load with a dollar value. Customers can swipe the gift card just like a credit card and pay for their purchases. At any given time, we can access our Square account and see how many gift cards are out there, as well as the remaining balance on each card. Other card processors probably offer the same (or a similar) service, so check with your processor and see what they offer.

One way to sell gift cards is online. Going back to Square, all we had to do to get set up to sell gift cards online was go into our store settings and make a few changes. Square then provided a link that we could put on our website or on social media; customers can buy gift cards by clicking that link, and Square will email them to the recipient. The card buyer can even schedule the delivery of the card for some future date, which I think may be the coolest thing about that service. If Aunt Jennie looks at the online gift card page for our store, she can go ahead and buy her nephew a gift card for his birthday and graduation at the same time. She pays for it at the time of purchase, and Square emails the gift cards to the nephew on the appointed day. The money goes into your store account the next day, and the nephew may (or may not) use the card at some point in the future. No matter how it works out with Aunt Jennie’s nephew, you’re “money ahead.” (Square is certainly not the only company who provides this gift card feature, but I’m using it as an example since it is the one we are familiar with. A little internet research will easily return a menu of providers to pick from.)

Pretty much everyone knows the old adage “A penny saved is a penny earned,” a phrase oft attributed to Ben Franklin, but also attributed to George Herbert, Thomas Fuller and others. It doesn’t really matter who said it first, of course. What matters is the truth of the thought, which is pretty simple to grasp: Any time you can save some money, it’s just like having earned some money. With some creative thought, gift cards can be used to save you money. And they can generate not just extra earnings, but also a lot of local good will.

Recently, we had an eight-hour music festival planned for our town, featuring primarily local musicians, almost all of whom are our customers. The event organizer approached us about being an event sponsor, and that honor usually equates to handing over cash for event expenses. The organizer wanted to pay each musician $100 for playing at the festival, and considering how tough the last year was on musicians, that seemed like a noble idea. But if we chipped in $500, that would only be about $18 per musician, which is not putting much of a dent in the $2,700 budgeted for the 27 musicians. After thinking about it, we came up with a better idea than cash. If we donated cash, each musician would get part of what we donated, mixed with donations from other sources. Our part in the festival would probably be briefly noted, and then forgotten. That’s when we decided that instead of cash, we’d come through with gift cards.

We agreed to provide 27 gift cards for $30 each. That’s $810 in gift cards, which is a pretty solid sponsorship arrangement. It’s more than the $500 cash we’d considered, but in reality, it will end up costing us less than the initial $500 consideration. Thirtydollar gift cards will probably be used on accessories (i.e., strings, sticks, etc.), and the margin on those items is higher than the store’s overall average margin. Let’s say, for sake of illustration, that our accessory margin is 45 points. That means that whatever the $30 cards are used for, each $30 card will only cost us about 55 percent of the face value, which amounts to about $16.50. That means that even if all 27 cards are completely redeemed, we’ll be out less than $450, instead of $810. It also means those musicians will be coming into the store at least one time each to redeem the cards, and chances are, they’ll buy more than just $30 worth of stuff. Those purchases above the $30 mark also help defray the cost of the cards and increase our bottom line.

There are probably a lot of other ways you can use gift cards to support local events, and it certainly will give your store more direct exposure with the participants than a stack of cash ever would. No matter what form of gift cards you use in your store, don’t overlook the power they hold to improve your engagement with the community, as well as your bottom line.

Happy trails.