January 31, 2006, 12:00 AM

It`s a Gift

Gift certificates are booming - and so is GiftCertificates.com.

It used to be that receiving a gift certificate was a letdown: no gadget to play with, no clothes to try on, no book to read. The instant gratification of a tangible gift just wasn’t there. In recent years, however, the desire by gift recipients for instant gratification is being overridden by a wish to select their own gifts. A National Retail Federation study, for example, shows 52% of consumers in 2005 wanted to receive a gift card or certificate for the holidays, up from 41% in 2003.

This shift in desire by gift recipients is altering the longtime perception that giving a gift certificate is impersonal. And steadily increasing gift certificate sales show that more gift givers are becoming comfortable with the choice. The TowerGroup, a financial services research and consulting firm, projects total sales of gift cards and certificates to be $78 billion in 2006, up 18% from $66 billion in 2005. Tower projects 15% growth in 2007 to $90 billion.

A welcome shift

So gift recipients are happy and gift givers are happy. And retailers have cause for jubilation, too. 50% of consumers who redeem gift certificates spend more than the certificate’s value, according to a client study by ValueLink, a division of First Data Corp. that creates electronic gifting programs for more than 250 brands.

This increased fondness for gift cards and certificates is especially welcome by online retailer GiftCertificates.com, and for a fairly obvious reason-all it sells is gift certificates. “The bottom line is we offer relevant gifts. And we understand the nuances of specific consumer demographics and lifestyle preferences when it comes to giving,” says Jill K. Ambrose, vice president of marketing. “We gain this understanding by conducting industry and customer research to keep up with the changing demand of this explosive market and studying the habits and purchasing practices of gift certificate buyers.”

Seattle-based GiftCertificates.com claims nearly 20,000 corporate customers and more than 2 million individual customers. The site is divided into three units: personal gifts, corporate incentive solutions and small business rewards. Launched in 1997, the pure-play online company offers gift certificates from more than 200 merchant partners. It also offers its own SuperCertificate, which can be exchanged for gift certificates from any of the merchants on its site. The web site receives 400,000 monthly visits by 300,000 unique visitors; its conversion rate is 6.1%, up from 5.2% in 2004, company executives report. The average customer ticket is $100. Industry estimates put GiftCertificates.com’s annual sales at $100 million, although the privately held company declines to reveal sales.

GiftCertificates.com disseminates certificates as stored value gift cards, conventional paper gift certificates and electronic gift certificates. There has been a continual increase in sales of electronic gift certificates over paper and cards, with digital reaching 39% of sales last year, up from 26% two years earlier.

Nontraditional merchants

GiftCertificates.com divides merchants into 15 categories, with the most popular being department stores, electronics and travel. “In the old days it used to be Sears and J.C. Penney that offered gift certificates. Over time, it expanded to all department stores, and ultimately most retailers,” says Timothy Barefield, GiftCertificates.com CEO. “Today more nontraditional merchants realize they should have gift certificates. For instance, the travel experience options are really expanding. In addition to spas, which started this segment, we’ve offered gift certificates for hot air balloon rides, race car clinics and even flights with a Russian MiG pilot.”

GiftCertificates.com maintains an inventory of products by purchasing paper gift certificates and gift cards along with serial numbers for electronic gift certificates. GiftCertificates.com purchases the certificates at a discounted rate and sells them to consumers at face value plus service fees. To avert risk involved with purchasing product in bulk, the company’s internal inventory department strategically manages supply with customer demand. It forecasts inventory based on sales and redemption activities to ensure it has optimal quantity and denomination values available.

The overall gift certificate boom is adding wind to the sails of a company that successfully weathered some stormy online seas. “Since it launched, it certainly has had steady and stable growth, especially considering the volatility of the market early on,” says Patti Freeman Evans, retail analyst at Jupiter Research. “It has provided a customer acquisition source for retailers and has both supply and demand benefits. It enables retailers to get to customers they can’t reach from other marketing vehicles, and consumers to save time and find gift certificates they might not have thought about otherwise.”

Not all news, however, is necessarily good. While online sales of gift cards enjoyed a healthy 19% year-over-year increase during the 2005 holiday season, they lagged the 25% growth in online holiday sales overall, says John Miniati, vice president of retail marketing solutions at comScore Networks Inc., a research firm specializing in consumer behavior. “This could indicate that gift certificates have less appeal to online shoppers than to consumers who also shop at retail stores, where the prevalence of gift cards is especially appealing for last-minute shoppers.”

Increased exposure

Still, the growth in overall online retailing and increasing use of the Internet to research offline purchases is helping GiftCertificates.com grow, Freeman Evans says. “Many people search online to prepare for an offline purchase, but then often choose to give a gift certificate instead. This kind of activity with multi-channel retailers is pushing gift certificate sales. And it drives both in-store and online traffic.”

Some may wonder why a site like GiftCertificates.com is needed when most retailers can sell their own in their stores and on their web sites. “GiftCertificates.com provides increased exposure for retailers within the consumer market. The increased exposure assists in increasing awareness and building their brand,” Ambrose says. “It also assists in increased sales. We feature unique merchant promotions, for example. The merchant promotion pages this holiday season had around a 9% conversion rate vs. 8% for our home page.”

The company approaches potential merchant partners with a simple pitch. “We will bring you additional customers,” Barefield says. “And if you don’t have the capability to distribute via the Internet, we will be your online channel for offering gift certificates.”

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