November 2, 2007, 12:00 AM

Coffee retailer gets an offline buzz from online gift card sales

Paul Smith doesn’t sell many gift cards online, but believes promoting gift cards on his web site leads to phone and store sales. Plus, that piece of plastic with his brand, Great Lakes Chocolate & Coffee, is a reminder that customers carry with them.

 

Paul Smith, president of Great Lakes Chocolate & Coffee Company, is a believer in selling gift cards online, even though he’s not selling many through the web site itelf. He sees evidence that consumers who browse his site are buying gift cards via the phone and in his stores, and he thinks offering the increasingly popular plastic presents adds legitimacy to his small company.

Smith, who went online in November 2002, six months after opening his first store in Sturgis, MI, began selling gift cards online in early 2006. Gift cards had proven popular in his store and, since his policy is to offer all his products online, he decided to add the gift cards to the site.

Online sales have been modest-Smith estimates only a few hundred dollars worth of gift cards have been bought and redeemed online. But he figures customers who have seen the gift cards on the site are probably calling his toll-free number to place orders, just as they do with other products.

“I had a gentleman last year who ordered one pound of chocolate online and then several months later he called over the phone and ordered $3,000 worth of chocolate for his company,” Smith says. “It was directly related to the fact we were online, he found us and he had a good experience. We’ve had people call in and order 25 $10 gift cards, maybe to give to employees. It may not be rung up through the web site, but we believe it goes hand in hand and really adds to the phone business.” Overall, Smith says 2.5% to 3% of his sales come via the web.

Customers can buy a gift card in any amount starting at $10, and can reload value to the cards when the balance is gone. Smith trains his store clerks to ask customers if they want to add value when a card is used up, and most do so and keep on carrying the card-which pleases Smith. “It’s also a form of advertising,” he says. “When someone puts it in their wallet you’re going to be on their mind.”

Smith gets the gift cards and card-processing services from Valutec, a subsidiary of Metavante Corp. that specializes in store-branded gift cards. Most of Valutec’s customers choose to offer gift cards that can be loaded in any amount rather than cards with fixed amounts, such as $10 or $25, says Dan Brames, vice president of sales. That allows the customer to choose the amount they want to give as a gift, and saves the merchant money because a customer who wants to give a $100 gift can buy just one card, not four.

Valutec charges retailers 60 cents to nearly $1 per card, although prices can be lower at high volumes. There are also fees for processing card transactions. Retailers can pay per transaction, usually 18 cents, or pay a flat fee for a set number of transactions, such as $40 per month for up to 4,000 transactions per location per year.

Smith, who recently opened his second store in Ann Arbor, MI, says he pays less than $2,000 a year for gift card processing, plus the price of the cards. He has sold a total of 1,414 gift cards online and off and there were $5,900 in outstanding card balances as of Oct. 31. Brames says the typical Valutec merchant client has $10,000 in outstanding balances after a year, money that the retailer can use until it is redeemed by customers.

Smith believes there are other benefits to gift cards. Just as having a web site is part of legitimizing his small company, so is offering gift cards, he says. “I don’t see how people can afford not to offer gift cards,” he says. “The consumer is educated and they’re tuned in to gift cards.”

 

 

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