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WHY OFFER GIFT CARDS?
Mom-and-pop gift cards
These modern alternatives to gift certificates are going local
Ilana DeBare, Chronicle Staff Writer
Saturday, June 23, 2007
From Christmas stockings to bar mitzvah bashes, plastic gift cards from big chain stores have become an accepted part of American gift-giving over the past decade.
Now, local retailers are getting into the act, offering gift cards instead of old-fashioned gift certificates.
A small but growing number of neighborhood stores are starting to sell their own branded gift cards, spurred by advances in point-of-sale technology that make it relatively cheap and easy for them to process the cards.
DeLessio Market and Bakery, with two bakery-cafe locations in San Francisco, has sold about 3,000 gift cards in the past two years. Most are bought by regular customers who use the cards to pay for their morning coffee.
"I'd seen gift cards all over the place and thought, 'Why can't we do this?' " general manager Bob DeTulio said.
And Three Bee's Nursery, a garden store in the city's Richmond District, sells cards to a variety of customers, including real estate agents who use them as thank-you gifts for clients.
"It's a great service, and it just goes through our credit card machine," said Dorcas McIntosh, who owns the nursery with her son Ben Kelley.
Gift cards, which store a set value that can be used for purchases, are a relatively new feature in the retail landscape. Large chain stores started issuing gift cards in the 1990s. By 2002, more than half of their customers said they planned to buy a card as a gift, according to the consulting firm Deloitte.
Today, Americans buy as much as $50 billion worth of gift cards each year that are good at a single retailer, according to Brian Riley, a senior research analyst at TowerGroup.
Most of those cards are for national brands such as Best Buy, Starbucks and Apple's iTunes. And so far, the financial service companies that manufacture and process gift cards have marketed the service primarily to chains.
But that is starting to change.
"Everyone's been going after the big-box and little-box retailers, but now they're starting to look at other channels, like airlines," said Bob Skiba, general manager of the retail division of Comdata, which provides gift card services to stores. "The mass market -- mom-and-pop stores -- is a new phenomenon, about 3 years old."
Traditionally, most small retailers accommodated their customers' gift-giving needs by issuing paper gift certificates.
Gift cards became an option because a growing number of small retailers now have computerized cash registers that can handle gift cards as easily as credit and debit cards.
"What enabled us to do it is that our point-of-sale system supports it," said Jennifer Kaplan, owner of Rockridge Home, an Oakland home furnishings and gift store that started selling gift cards last fall. "Without that, there's no way we would do it."
Kaplan ordered her cards through Intuit, her point-of-sale technology provider, which started its QuickBooks gift card service in late 2005 and now furnishes cards to more than 3,000 small retailers. Other small businesses obtain gift cards through the bank that handles their credit card transactions, through credit card processing companies, or through gift card companies such as Comdata.
Most vendors charge an initial fee for ordering the plastic cards, followed by transaction fees for each swipe of a card. The transaction fees vary from vendor to vendor but are often similar to the cost of handling a credit card or debit card purchase.
At Rockridge Home, Kaplan found gift cards less expensive and more efficient than paper gift certificates. She has sold about 100 cards since autumn.
"Our point-of-sale system didn't track gift certificates, so we had no idea what our liability was and no way to track the certificate if someone lost it," she said. "And to have really professional-looking gift certificates cost a lot of money. We were spending about $3 preparing each one, between printing them on fancy paper, putting them in a fancy envelope and then putting them in a gold gift box."
Small retailers cite other advantages to the cards: At DeLessio Market, the cards have helped speed up the checkout line because they don't require employees to make change. At Three Bee's Nursery, they bring in new customers who typically spend more than the value on the card.
Gift cards also help small retailers' cash flow by providing payment today for purchases that will occur in the future. Sometimes those purchases never even take place.
"Many times, those cards aren't redeemed and it ends up being free money for the merchant," said Todd Ferrell, a San Francisco agent for Cardservice International, a credit card processing company that offers gift cards.
For consumers, gift cards for neighborhood retailers offer convenience and a more personalized alternative to the chain-store cards that are now sold on display racks everywhere from Safeway to gas stations.
But they do carry a slight risk. Cardholders could be left in the lurch if the store that issued them goes bankrupt. While that's a possibility with big chain stores, it's more likely on the mom-and-pop level.
"If a business goes belly up -- say a restaurant, where there's a high risk of failure -- customers with unused cards could be left holding the bag," TowerGroup's Riley said.
Meanwhile, gift cards don't benefit all kinds of small retailers equally.
Chavez Jewelry Design in San Jose has sold only three or four gift cards since it started offering them three months ago. Owner Frank Chavez said people have been more interested in the in-house credit cards he began offering at the same time, which allow customers to finance more expensive purchases.
And Ray's Radiator and Glass in St. Helena received an introductory set of 100 gift cards for free from Cardservice International, its credit card processor.
But apparently gift cards for auto repairs don't have the same consumer cachet as cards for garden items or housewares.
"Nobody's bought them," said manager Tara Woodward. "We haven't had anyone buy them. But you know, we sell radiators. It's probably not a great idea for our business."
E-mail Ilana DeBare at idebare@sfchronicle.com.
This article appeared on page C - 1 of the San Francisco Chronicle
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