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Gift Card Roundtable 2009 Excerpt
April 08, 2009
By Alex Palmer (Moderator)
Incentive recently sat down with members of the incentive gift card industry to discuss what challenges and opportunities they are seeing during this troubling period for Corporate America. The participants—who included representatives from a number of major brands and recognized names in the gift card segment—offered insight into how they are maintaining their strong brands, what the biggest challenges facing the market are, and where they see potential for future growth.
Below are highlights from the discussion; the full transcript and audio are available at incentivemag.com/giftcardrt2009.
Alex Palmer: We will start with the issue that is on everybody's mind: The economy. From your individual perspectives, what is the main challenge for the incentive gift card industry?
Andrew Dodge: I see that one of the biggest challenges right now is perception and what is happening in the retail world. There are two big things making news: layoffs and retailers that are floundering for a variety of reasons. They are floundering because the market is bad and because a lot of retailers that have taken a lot of debt are really struggling. I have tried to support the positive things that are going on, but frankly there is such a wave of negativity that people keep hearing about the market being in the tank and that the national retailers are just really struggling. That has spilled over to a challenging perception for gift cards especially through the fourth quarter [of 2008].
Nathan Ehrlich: We at Home Depot went through a difficult time recently; we were on the news, and we right-sized the company by about 7,000 employees. We are a very, very strong company. Financially we are sound and cash-flow is terrific; we have extremely small debt. But getting back to that word "perception," because we let people go to get the company to the right size for the amount of volume we are doing, there is a perception that maybe we are weak, and that is far from the truth.
Rich Killian: Instead of just selling my brands, now I am also selling their financials. I'll hear, "Rich, we do not want to work with certain retailers because we have heard this," so I am out there waving the flag that all of my retailers' financials are doing fine, and I am sending out more data on company information, which is helping.
Dan Horne: What we have to realize is that as an industry, despite the fact that there are a lot of individual companies out there doing well or poorly, the industry as a whole gets a reputation.
The fact that Home Depot is very strong because it is not highly leveraged does not get through to the average consumer. People on Wall Street may understand, but the average consumer does not realize that and not even the corporate buyers comprehend that concept, because the industry as a whole does not react.
We are all subject to the winds of the market and when something happens like a Circuit City or Linens n' Things going out of business, it impacts us all in the industry. As Andrew said, the news media is very taken up with the negative. Couple that with the fact that there is no industry response and it creates problems for everybody.
Alex Palmer: Andrew, as the Incentive Gift Card Council [IGCC] president, has this become a priority for your group? Are you trying to get some kind of positive word out?
Andrew Dodge: We are. We issued two press releases—a trade press release and a business press release—in November, for the first time. The message was received reasonably well, but it was not received and picked up broadly and that was because there is such a tremendous amount of momentum behind these stories about the challenges that retailers are facing.
The key is peeling away on the onion so that consumers know that some retailers have adjusted their plans and they are running their businesses responsibly. L.L. Bean has no debt, but we started to adjust our expense plan almost a year ago.
The IGCC board is trying to stem that tide as best we can and one of the things that we are doing is trying to deliver a clear message that companies are continuing to fund reward, recognition and incentive programs—and for companies that do not have organized programs, this might be a really good time to introduce one. In a downturn, you strengthen your base of internal employees and customers and that positions your company well for when we come out of this.
A lot of performance improvement companies are actually really busy right now. Granted, that their customers have either smaller employee bases or their sales have shrunk a little bit, but they are involved in lots of exciting reward, recognition, sales incentive and distributor programs.
So it goes right down through the stakeholder concept, down to the vendor chain; many of the participants of which are involved in some sort of incentive-based program.
Peter Friend: As an online company, we really have not had the same issues as the brick-and-mortar retail chains, and the threat for our brand is spread out because we represent an opportunity to book through to many different brands of hotels. But travel as a category has been hurt and people are not traveling as much. But it has not been an issue for us as far as Travelocity as a brand.
Travel gift cards have been successful at retail, but they have been more successful in the B2B [business-to-business] market and in the consumer loyalty segments. What I've found is that when people redeem for a Travelocity gift card in the B2B channel, they already have a trip in mind and use that card within seven to 10 days.
In a tough economy like this, you are seeing a lot of our hotel suppliers offering bigger discounts, so people are getting a lot more value for the same price, and I am sure that is true for other retailers as well. But in the hotel category, you are seeing prices decrease dramatically, so the value to the consumer has gone up and their buying power has gone up.
Alex Palmer: I will open that up to others: Are you seeing that gift cards are now becoming more valuable, where you can actually buy more with your gift card than you could before the downturn?
Laura Parker: We just did a bonus card in our restaurants where if you purchased a $100 card, then you get a $20 card to come back and use. I will tell you, it's the first time we as a company have done it, but it has been very successful.
I have been approached by individual businesses that ask us to sell them say $100 cards for $50—very significant discounts—which just does not fit with our business model. Their theory is that they are using them as incentives or permissions to drive people to their business, while we can consider it to be advertising and not as a discount on a card. I do not know if others are seeing that, but we have not gone down that path.
Nathan Ehrlich: I see a lot of that, particularly in the restaurant and entertainment industries. In retail I do not see quite as much of it. We do not discount our card that way, where you can buy a card for $100 with a face value of $125. To a large degree, it is that company-wide strategy that is keeping us as financially strong as we are. We get approached very often by people that want our card at some deep discount in exchange for the media exposure we'll receive. That is not our strategy, and I would be very leery of anybody that is offering those kind of deep discounts on a card—very leery how their financial position is if they are trying to raise cash that way. We are very stringent, very careful, about who we give discounts to.
Rich Killian: I am seeing lower denominations more common—instead of doing $50 or $100, I am seeing $10 and $25 going out the door a lot more for all of my retailers across the board. I really see this market as an opportunity for the gift card market to stand up and sell more. If an incentive planner is used to dealing with TVs or cars or large incentives, these folks can move down and sell gift cards. I am trying to sell gift cards to people that maybe have not used them before, or have used them for larger dollar amounts.
Alex Palmer: Dan, what are you seeing as far as gift cards' potential as a loyalty tool or as a way to really turn a one-time award winner into a regular customer?
Dan Horne: The holy grail is really to see this process where an incentive recipient or gift card recipient may be coming into a retail environment for the first time, and then become a loyal customer and use this card for continued purchases.
The only place we have seen that so far is QSR [quick-service restaurants], with Subway, Starbucks, Dunkin' Donut, and places like that, where we have continual transactions. Those restaurants are leading the way. Two years ago we did not have anybody doing this sort of thing. So there has been some movement.
It is still an ideal and it has not yet been fleshed out in other areas, but I think, especially when we have this economic situation, retailers are looking at who they are going to take care of first. They want to take care of their loyal customers first, because that is the bread and butter of the organization, and if there is a way that they can increase the value to that customer and increase the stickiness of that relationship, they are going to pursue it. I think that the gift card is one way to do this; maybe it's not the tool that does it, but maybe it's a tool that helps.
Laura Parker: What has been driven into me at OSI is that our gift card program is not about selling gift cards, it is about driving incremental business and getting people in there, because we believe once people come, they will enjoy the experience and they will come back and become more of a frequent user then, if they have not experienced us at all. I believe in the loyalty programs, and I think there are ways to make it work easily for the consumer. It is just trying to figure out: Do you do points, do you do dollars, do you do giveaways? I think that is where we have hit a hurdle, but I think we will get past it and we will have something out there.
Alex Palmer: Nathan, generally we think of gift card incentives as a treat for yourself or something you might not buy regularly, but are you seeing any sort of shift at Home Depot—are people trying to buy things that are more typically considered necessities rather than wants?
Nathan Ehrlich: Absolutely. There are fewer projects going on right now. The denomination is going down a little bit, and the way people are redeeming it is much more towards the necessities rather than the kitchen, the bath, the remodeling, the inspirational thing.
That is going to be a shift in our strategy—to market it less toward the big inspirational remodeling and redo and more toward a card that you can use everyday for those basic necessities, not like groceries, but those things to help maintain your house, which is your biggest investment.
For incentives, generally people will choose or even get somebody else a gift card if that somebody else is in the midst of working on a project. So we are trying to reposition it, especially in the incentive market, as less of an inspirational type of gift and more targeted at just maintaining and keeping things going and take care of some of those expenses.
Dan Horne: The consumer market is a little soft right now, but everything I am hearing in the B2B world, is that the companies I am working with who are incentive suppliers are having good years. So to reiterate the point with clients that these products work, and they work every time, and they do what they say they are going to do, is a very powerful message right now.
From that standpoint, they are going to continue to do well even in a very bad economy. I expect the B2B side of gift cards to increase the share. In fact, we collected some data in November 2008 and the B2B side was much, much stronger. People had actually expected that the consumer side would be down, and that the B2B side would be up, and that in fact that is how it played out.
Send comments to alex.palmer@incentivemag.com.
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