The New York Times The New York Times Technology December 30, 2002  

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E-COMMERCE REPORT

Strong Sales for Online Merchants

By BOB TEDESCHI

As online merchants began tallying the results of a stronger-than-expected holiday season, they were further buoyed last week by another bit of good news: gift certificates, a favored scrip among post-holiday bargain hunters, enjoyed their best season ever online.

By Dec. 20, holiday sales of gift cards and e-mail gift certificates had soared 64 percent over last year, pushing the 2002 total toward the $250 million mark, according to comScore Networks, an Internet research firm.

And because nearly 70 percent of holiday gift certificates are typically redeemed by mid-January, retailers are counting on either a final bump for holiday sales or a decent start for the new year.

Take REI.com, the Web site of the outdoor goods retailer Recreational Equipment. Gift certificate sales accounted for more than 12 percent of the site's holiday total, and total dollar sales of gift certificates were 55 times as great as those of the next-best-selling item: a North Face jacket. (REI, a privately held cooperative, would not disclose dollar sales figures.)

Joan Broughton, who oversees REI.com, said most of those sales would not make it onto the company's books until after the new year, when customers redeemed the gift certificates. With so many people taking the days after Christmas off from work which is where many prefer to shop on the Web Ms. Broughton said she was not expecting many quick redemptions.

But as was the case this year, Ms. Broughton said, "we are looking forward to getting a big boost in January sales."

As online retailers try to determine how much they will make from gift certificate redemptions this season, they may be in for a nice bonus because customers usually spend 10 to 15 percent more than the face value of their certificates.

These incremental sales are even more common now than in the era of the paper gift certificate, said Carrie A. Johnson, an analyst with Forrester Research, a technology consultant. With paper certificates, a consumer can redeem a small part of the certificate, then get a cash refund for the remaining amount. But with plastic gift cards or "stored value" cards, in retail vernacular the balance remains on the card.

That is but one reason plastic has helped spur the gift certificate industry, both online and off. According to Comdata, a Ceridian business whose Stored Value Systems unit runs gift certificate programs for scores of retailers, consumers spent $31 billion on gift certificates last year, with just $6 billion spent on paper certificates. In 1998, they spent $20 billion, with half going to paper certificates, and half to plastic.

"Plastic gift cards have much more cachet than the paper certificates," Ms. Johnson said. "They're easier to use, they can fit in someone's wallet, and with the designs retailers are putting on them, they look a lot nicer. It seems silly, but it's helping consumers get over the fact that they're giving a gift that doesn't require any thought."

E-mail certificates, meanwhile, have also grown in popularity this season. Ms. Broughton of REI.com said 60 percent of the gift certificates sold on her site had been delivered via e-mail. The e-mail version was particularly valuable in the week or so before Christmas, when the site could not mail goods to most consumers in time for the holiday. Although Ms. Broughton would not say how much consumers had spent on electronic gift certificates, she said such sales were comparable to merchandise sales in preceding weeks.

Though many of those certificates will not be redeemed immediately, REI, like other retailers, benefits in the interim because it receives the money upfront and can earn interest until the certificate is redeemed. In fact, roughly 15 percent of gift certificates will never be redeemed, according to Comdata.

REI.com has a higher redemption rate than that, Ms. Broughton said, in part because it tracks gift certificate use closely. For instance, she said that if a gift certificate recipient went several weeks without redeeming it, REI alerts the person who bought the certificate via e-mail.

Such a policy is particularly useful in an environment in which competing technologies can interfere with electronic gift certificate redemption. On e-mail services like Hotmail, for instance, users can set their spam-filtering preferences so tightly that gift certificates will be thrown out without the recipient's knowledge.

Other technical difficulties can prevent companies from running successful gift certificate programs, said Michael Brewer, a spokesman for Stored Value Systems.

Continued
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INVESTING: DIARY; Ameritrade Raises Rate  (September 22, 2002) 

Troubled Airlines Face Reality: Those Cheap Fares Have a Price  (August 18, 2002) 

TRAVEL ADVISORY; Travel Web Site Adds Student Fares  (August 18, 2002) 

CURRENTS: WHO KNEW?; A Web Site With Closeouts at Bargain-Basement Prices  (June 27, 2002) 

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Justin Lane for The New York Times
Plastic cards have helped the gift certificate business by offering catchy designs and a certain amount of cachet. Below, the Sharper Image and REI.com offer gift certificates.


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