Gift Certificates

This week has been exhausting, especially yesterday. Yesterday my receiving order took seven hours, mostly because I was busy helping customers at the same time. A couple of helpful folks joined me in the process until an employee could arrive in the afternoon.

Today is likely to be the biggest shopping day of my year. Last Saturday was a better sales day than my Saturday before Christmas in 2006, so I have no idea what to expect today. Since I'm actually working, I don't have a lot of time to blog or think about blog topics, so I figured I would discuss a nuts and bolts issue today, especially for those interested in the retail process.

Gift Certificates!

Stores love gift certificates, or at least they should. Customers, usually relatives and friends of our clientèle, come in and purchase this little slip of paper in whatever denomination they want. The printing and envelopes for these things aren't cheap, but the secret beauty of a gift certificate is that a good percentage, about 30%, never get used completely or at all. That's just free money, but with a small catch.

California law states that if you buy a gift certificate, it never expires. If you get one as a promotion or gift from a store, they can have an expiration date, however. For a store, this means you've got a perpetual liability sitting over your head, but the reality is many of those certificates are lost or gone forever.

Another strange accounting thing with gift certificates is that they aren't counted as sales income until they're redeemed. You'll see many big box stores rejoicing in January because their gift cards are being redeemed and they can finally book the sale. For a small store like mine, I don't find much to celebrate in this regard. My sales tracking worksheet doesn't show the gift certificate sale in December, but my accounting software sure as heck shows the money! January is pay-up month, not impress the shareholders month.

Gift bank (credit) cards are becoming more popular. These are a godsend of sorts, but not without their problems. Customers arrive with credit card gift cards that they've received as gifts. The issue with these cards is two-fold. First, they have a denomination, and if they've been used before, the customer rarely knows how much is on the card. I can't tell them. You'll see me standing at the register adding and removing items trying to shoehorn a sale onto a mystery gift card. Second, what the customer doesn't know is that the fees for processing are outrageous on gift cards, sometimes as high as 4%. The store is subsidizing the use of the gift card without many of the benefits of an "in-store" program, like we get with gift certificates. Still, that's the cost of doing business and I'm always happy to see the cards.

Oh finally, the trend is away from paper when it comes to gift certificates. There are third party companies that allow you to accept your own gift cards that they manage for a monthly fee. I've avoided this because I despise anything that touches cash flow, such as monthly fees of any sort, but I've read that customers are willing to buy gift cards in amounts up to 30% higher than paper certificates, so it would probably make sense. A store that uses paper certificates can do the math here: 30% of your current paper gift certificate sales (your increase) times 30% (the percentage never redeemed), minus the program fees. It's probably a smart thing.

I can't issue gift cards in-house, otherwise I would. There's also the option to participate in an existing program. One is called Booksense, a program for book stores. This would allow me to issue and accept gift cards usable at book stores across the country. Buy a gift certificate from me and you could use it in my store or at Barnes & Noble, and vice versa. Managed programs are also best for stores with multiple locations, since the cards can be tracked easier.

I recommend new stores look at gift cards first, and if that doesn't suit them they can do certificates. My point-of-sale system (Microsoft RMS) has a "voucher" option that tracks gift certificates and their balances. Stores can either have them printed professionally, usually for $.50-1.00 each or they can make them in-house. The important thing is keeping the numbers in sequence.