Retailers say gift cards make cents
Since the start of the 2000s, Ace, True Value and Do it Best have all started gift card programs, giving their members away to compete for consumer dollars during the holiday season and beyond.
A look at the numbers explains why these retailers want a piece of the action. Gift cards have become a major component of the retail economy, accounting for $97 billion in sales in 2007, up from $83 billion the previous year.
Ace’s program has been in place since 2001, and about 3,000 Ace retailers participate (all but the individually branded stores). Ace’s program works much like Best Buy’s or Home Depot’s; when a customer buys a gift card, it can be used at any Ace location across the United States, but not online.
“The store at which the card is redeemed is where the sale is realized,” says Becky Maloney, market intelligence/promotional manager for Ace. “It’s pretty much a wash on the front end—or where the card is sold.”
Even in a tough home improvement market, Ace’s gift card sales increased 17 percent in 2007 to about $13 million (the jump was about 30 percent over the previous year). The co-op also phased out its paper certificate program last year, focusing solely on gift cards going forward.
Ace gift cards can be worth anywhere from $5 to $250, with the average being in the $35 range.
“I think it provides another gift option for our customers, and we promote it that way,” Maloney said. “It’s a great tool for branding, and it’s reaching consumers industry-wide.”
Do it Best’s gift card program—in its fifth year—is not co-op-wide but is customized to the individual store.
“When we were setting up the program, members told us they wanted something that would continue to build the brand in their stores,” said Chris Hill, rental program manager for Do it Best. “The gift cards can have their name and logo on them. It’s a store-by-store program.”
Although there is no cross redemption from one Do it Best store to another, the cards can be redeemed online. The Do it Best Web address is written on each gift card for such instances.
Do it Best customers can purchase any denomination up to $2,500, but the average gift card value in 2007 was right around $50.
Twenty-five percent to 30 percent of Do it Best stores participate in the gift card program, and the co-op has seen 8 percent to 10 percent growth in dollar volume in each of the last three years. In addition, many stores issue gift cards for store credit on returned items if a customer does not have a receipt.
According to Hill, the biggest draw-back to the gift card program is that each state has its own set of laws, and it’s up to Do it Best to keep up on what’s happening legislatively.
Mostly, however, she considers the program a vast improvement over paper certificates, which had to be processed manually by the cashier.
“This is easier, and it’s pretty much a staple now,” Hill said. “People expect retailers to have them.”
True Value does not have an overarching, standardized gift card or certificate program. Instead, programs are managed and implemented at the store level, “providing each retailer the independence to meet their local customers’ needs,” the company said.
DeNault’s True Value, with seven locations in Southern California, started its gift card program last summer, with vp Bob DeNault ordering 1,000 gift cards at the start.
DeNault said there are certain negatives to the program, including the following: there are charges for the cards themselves as well as every time they’re used; customers sometimes disagree with balances and the cards can only be used at DeNaults’s even locations.
Still, he thinks the program offers a lot of potential for increasing sales in his store, particularly around the holidays.
“If a person doesn’t know what to get for someone, it makes a great gift,” DeNault said.
Weyerhaeuser reports loss in fourth quarter
Federal Way, Wash.-based Weyerhaeuser reported a net fourth-quarter loss of $63 million, swinging from earnings of $507 million in the same period last year. Sales were $3.9 billion, down 23.1 percent from $4.8 billion last year.
For the year, the forest products company had net earnings of $790 million, up 74.4 percent from $453 million in 2006. Sales dropped, however, to $16.3 billion from $18.7 billion last year, a decline of 12.8 percent.
Steven Rogel, chairman and CEO of Weyerhaeuser, characterized 2007 as a “challenging year” and said the company has been implementing ongoing improvements to its packaging business, while implementing “growth strategies” in its timberlands business.
“The continuing erosion of the U.S. housing market created very unfavorable market conditions for our timberlands, wood products and real estate businesses,” Rogel said. “Despite difficult market conditions, which we expect to continue through 2008, Weyerhaeuser remains focused on managing through the downturn.”
The company’s real estate business took the largest hit, with earnings falling 52 percent. Orders were down 19 percent, and the company’s backlog of homes sold, but not closed, dropped 35 percent.
Weyerhaeuser is one of North America’s largest diversified wood products companies.
NAR weighs in on Freddie Mac, Fannie Mae reform
The National Association of Realtors has submitted a position to the U.S. Senate Committee on Banking, Housing and Urban Development, supporting increased loan limits in government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.
Reform to the two main government-sponsored lending organizations has been a topic of debate in light of the damaged subprime mortgage market.
Proponents of raising loan limits say it is a needed stimulus for the housing market. Opponents say giving the lending organizations a route to the “jumbo” loan market could be dangerous without additional safeguards.
Currently, a cap of $417,000 exists on loans issued by the GSEs. The NAR and other proponents of the stimulus plan support raising the GSE lending limit to $625,000.
The NAR submitted testimony to the HUD committee saying, “Fannie and Freddie are our partners in the housing industry and are important to stabilizing and strengthening the housing market.”
The group said the package could help “as many as” 500,000 jumbo loan borrowers to refinance. Additionally, the NAR says a higher rate limit could allow a large number of borrowers to enter the home buying market.