Holiday abyss claims gift cards

Holiday abyss claims gift cards

By Melissa Allison
/ Seattle Times business reporter
Thursday, December 20, 2007 – Page updated at 12:00 AM

As holiday horror stories go, gift-card blunders are approaching the status of ugly sweaters and bad cologne.

According to Consumer Reports, more than a quarter of gift-card
recipients don’t use all of them. About $8 billion went unredeemed last
year, TowerGroup estimates, which was almost 10 percent of the amount
given.

Gift cards are the tech-age version of gift certificates, and they
make it easier for such small-ticket retailers as coffee shops to get
in the game. As the world’s largest coffee-shop chain, Starbucks is
driving dizzying growth in that segment.

A little more than 11 percent of people surveyed during the 2006
holiday season said they bought gift cards at coffee shops, up from 6.9
percent the year before. The National Retail Federation survey was
conducted by BIGresearch.

Starbucks says its cards do not sit idle because people can buy a
few items — lattes, for example — for as little as $10 or $15. Someone
could order a round for the house at just $50, which barely gets a foot
in the door of a high-end department store.

Starbucks’ figures prove the point. Last fiscal year, customers
activated cards worth $737.4 million. They redeemed cards for even
more: $1.04 billion. The second figure is higher because Starbucks has
sold gift cards since 2001, so there were unused dollars from earlier
years, and people regularly reload the cards.

Customers redeem Starbucks cards so quickly that it helps the
company anticipate sales. After racking up $352.2 million on cards last
holiday season, customers redeemed almost that much in the following
three months, a whopping 14.5 percent of total sales for the quarter.

Starbucks and other retailers cannot include the card dollars as
revenue until they are redeemed. The rest sits on balance sheets
accruing interest.

Starbucks sells more cards each year because it keeps adding stores
and offering cards in more countries. Last holiday season, it activated
23.6 million new cards, a 32 percent boost from the year before. The
company does not disclose volumes from 2001-05 because it changed
accounting procedures when it started accepting cards across
international borders in 2005.

Starbucks cards can be used in the U.S., Australia, Canada, Hong
Kong, Ireland, Mexico and the United Kingdom. Cards sold in Greece,
Japan, Spain, Taiwan and Thailand cannot be used outside the country
where they are purchased.

Such big coffee-selling chains as McDonald’s and Dunkin’ Donuts also have joined the gift-card fray.

Dunkin’ Donuts, which operates mostly east of the Mississippi River
and sells as much coffee as it does doughnuts, began offering the cards
in 2003. It does not say how many it sells, but the chain touts itself
as the first coffee retailer to offer cards that customers can
customize with their own photos. The customization costs $4.50.

Starbucks launched a card-personalization program this year that
lets customers create cards with their names and their favorite drinks
or cartoon versions of themselves. The cards cost $4, including
shipping, and come in four denominations.

Non-personalized Starbucks cards have no fees and can be bought in any amount from $5 to $500.

Starbucks does not welcome all forms of personalization. The webmaster of StarbucksGossip.com was stopped by company censors when he tried to order a card with his Web site’s name.

"Something like ‘Fluffy is my favorite cat’ might get approved," Jim Romenesko wrote on his site.

A Starbucks spokeswoman said the company’s policy is to avoid anything that would offend baristas or harm the brand.

"The term ‘gossip’ could be deemed offensive or harmful to our brand," Lisa Passé explained.

That might explain why CelebrityStarbucks.com got its name on a Starbucks card when StarbucksGossip.com did not.

McDonald’s, which began selling Arch Cards in 2005, insists it is not copying the coffee giant.

"We are not in competition with Starbucks," said McDonald’s USA
spokeswoman Shannelle Armstrong. "We focus on what our customers want."

Lately, that has meant premium salads, better coffee, iced coffee and gift cards — all things available at Starbucks, too.

McDonald’s does not disclose how many cards it sells. The chain has
about twice as many stores as Starbucks worldwide but offers the Arch
Card only at 13,000 U.S. stores. It plans to launch the card in Canada
soon, Armstrong said.

Starbucks isn’t worried about the competition. "When someone gives
the gift of a Starbucks card, they are actually gifting the experience
as well as the product," Passé said.

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