Gift Cards - The card dealers

"Once we do that, there's no stopping," says Yvonne West, Sainsbury's business direct manager. In the same month, the supermarket will unveil its own-brand gift card to sit alongside cards for Next, Orange, Debenhams, iTunes and Pizza Express. "We have tripled sales of gift cards over 18 months. It's a rolling stone," adds West. "Having gift card malls is helping to educate consumers. People are getting used to seeing them right before their eyes and this is building up the brand."

Gift card malls - basically in-store racks full of multiple-brand, wallet-size gift cards - have long been huge in the States. They were initially launched in the UK just before Christmas 2006 but uptake was sluggish at the time. However, consumer sea-change is seeing gift cards flying out of stores.

Various factors are fuelling the growth of gift card malls. They take up very little store space, overheads are minimal and there's little risk of theft because they have no money value until charged up at the till. Unlike paper vouchers, they don't get tatty and can be registered for security. Moreover, parents are replacing kids' pocket money with gift cards so they know exactly where youngsters are spending and, crucially, what they are buying.

Woolworths development manager, Alan Kellock, welcomes the enormous marketing opportunities that gift cards have created. Retailers can track how cards are being used, he says, right down to the product bought and section of store it came from. And consumers are topping up cards with additional funds, which means more cash spent at the tills.

But arguably one of the biggest bonuses is in licensing. This summer, Woolworths launches a suite of branded cards tied in with high-value toys and movies like Bratz and Barbie, Harry Potter and the new Indiana Jones blockbuster. "These cards have great collectable attraction," adds Kellock. "In fact, many are ending up on eBay."

One retailer selling another's gift card can work, provided the two brands are not competing in the same markets. Woolworth's will never sell Argos cards, says Kellock, because the retailers' product range and markets overlap. Likewise, it's hard to imagine Sainsbury's offering Tesco gift cards.

It's also been a challenge getting shop staff up to speed with gift card equipment. Sainsbury's West says: "Compliance has not always been 100 per cent in terms of keeping gift card malls tidy, well stocked and placed in the best store position."

Both Sainsbury's and Woolworths have tried various in-store locations for gift card malls, finding some more successful than others. Low-value impulse-buy cards are prominently displayed at Sainsbury's tills, while high-value cards are found near greeting cards and gift wrap. Woolworths' strategy is to place them in main walkways or the end of shelves for maximum visibility.

There's no ideal place to position malls, says West. "We're finding two types of customer: those who come in with the conscious intention of buying a gift card and those for whom it's a sudden impulse purchase. There are different store areas to target these buyers - high end by general gift merchandise and low end near checkouts."

Better customer education coupled with clever marketing is pushing up sales. Woolworths runs twice-yearly POS campaigns to raise consumer awareness. B&Q and Argos have backed their own-brand gift cards with successful media campaigns. And Selfridges is combining store entrance ads with seductive gift card packaging.

Gift card malls are proving highly profitable for UK printers, plastics decorators and card manufacturers that pursue gift card business. The capital investments needed to enter the market are relatively modest, especially for businesses that already have some of the printing and finishing equipment used in manufacture.

And as consumers demonstrate greater affection for gift cards, so retailers will place stronger emphasis on creating more elaborate packaging - in terms of both malls and cards. "Some (customers) require a carrier for a commodity product, others need packaging that immediately adds value," says Andrew Towns, media sales manager at specialist printer St Ives. "Consumers are purchasing gift cards as thoughtful presents, leading to better in-store placement and a need for better packaging solutions."

Not every retailer is riding the crest of the gift card wave. Virgin Experience Days says it has not seen "real demand for plastic" in the experience market. Virgin Experience Days cards are currently being tested in Clinton Cards. But Paul O'Brien, managing director of Acorne, the company behind Virgin Experience Days, Virgin Vouchers and Leisure Vouchers, is convinced consumers still prefer paper - at least in the experiential sector. "We offer experiences as a gift rather than a form of disposable cash and that is where the difference lies. Consumers love the look, feel and tangible value of paper vouchers, they are easy to split up and pass on to family and friends," he says.

Gift cards also remain sluggish in the B2B market, which is 90 per cent dominated by paper vouchers. Plastic must outpace paper in retailing, argues VA director general Andrew Johnson, before B2B catches up. "There are a lot more complexities in B2B. It requires lots of rigid and secure operating systems," he says.

Plastic may be the natural successor to paper within retailing - but for how long? Open and closed loop cards, effectively pre-paid cards branded by Visa or Mastercard, are already being investigated by Woolworths. Alan Kellock rejects any suggestion they may derail gift card sales, however. "Open and closed is good for safe internet shopping," says Kellock. "Woolworths envisages selling two or three financial cards aimed at internet shopping and travel. But gift cards will always be more meaningful."

This opinion is shared by Acorne's Paul O'Brien, who is currently researching this potential route to market. "With an offer such as Virgin Experience Days, it is very complicated to offer a closed loop card with so many redemption partners using different till technologies," he says.

The rise of digital - where virtual vouchers are exchanged electronically in much the same way as download music - could also impact on gift cards. Download gift cards could be the next generation. But according to Johnson, the drawback is that digital loses the giftability factor.

"John Lewis has stuck with its paper vouchers, which are very sophisticated," he notes. "They act like gift cards but in a paper form. This is a great innovation and demonstrates that the mechanics are almost irrelevant."

Gift cards are evolving into much more than a last-minute impulse buy for birthdays and Christmas. Cards are opening up a raft of new routes to market and broadening in-store branding opportunities. Moreover, the flexibility and convenience of purchasing a wide range of gift card brands from a single outlet is highly appealing. Says Johnson: "As gift card centres become more popular, it's a compelling reason to drop paper and move to plastic."

BORN IN THE USA: THE RISE OF GIFT CARD MALLS

Gift card malls are in virtually every US supermarket, pharmacy and convenience store. Paper gift vouchers, by contrast, have all but faded away, according to the gift card guru Marilyn Bochiccio, CEO of Paybefore.com.

Even the smallest retailers offer gift cards over paper vouchers - or certificates as they are called in the US. Unlike the UK, the certificate does not have a special place in US retailing, so there hasn't been a psychological hurdle to overcome in the transition from paper to plastic. "The card is more consumer-friendly. It's easier to carry in the wallet, better graphics, easy to use, which is why the US has gravitated to the card," says Bochiccio.

The gift card market took root in the US more than a decade ago. Yet gift card malls still haven't reached maturity. "Many (retailers) are just starting to recognise them as a strong marketing tool and how to use this very powerful distribution channel," she adds.

This recognition is illustrated by the increasing use of striking gift card mall design to drive up sales. Enhanced POS and graphics are key.

In cases where gift card malls have been in-store for several years, the top sellers tend to be branded with a financial network such as Visa or Mastercard. Although branded with a particular retailer, these cards can also be used in many other stores. "Networked cards may represent 50 per cent volume," says Bochiccio.

Sales in the US are being powered by positive experiences. "Recipients are recreating the same experience for others when it's their turn to be the gift giver. Positive reinforcement - that's what it's all about."

US retailers are focused on making cards more "giftable". That means special packaging or displaying a customised photo on the card. "There was concern that cards might seem impersonal. Now it's all about demonstrating that thought and care went into buying the card."

Gift cards in the US have proved a vital advertising and promotions platform. And, as in the UK, they are useful for profiling customer spending habits, flagging up what is being bought and where.

Gift card malls are one of the fastest growing segments in the prepaid market. "There is a huge potential for growth because cards are a better way to deliver rewards and incentives," says Bochiccio. "And we haven't scratched the surface yet."

COR BLIGHTY: HOW THE MALLS LAUNCHED IN THE UK

A pack instinct is shaping the UK gift card sector. Sainsbury's and WHSmith launched gift card malls in November 2006 and in the past 18 months, other leading retailers have jumped on board this lucrative bandwagon.

However, the credit for the very first British gift card must go to Debenhams, which launched in 2002 and now offers a family of cards including luxury boxed and charity versions. Debenhams doesn't have a gift card mall in-house but its electronic gift card is available in other selected retailers' malls.

Combined UK voucher and gift card sales reached £6 billion at the end of 2007, according to figures from the Voucher Association.

At the same time Woolworths, another high traffic retailer, launched in-store malls and is poised to unveil a suite of branded cards tied into cinema blockbusters and top kids' toys.

While the paper voucher is still dominant in the B2B market, consumers can now choose from more than 70 different gift cards, while 11 retail chains are hosting gift card malls including Shell, Borders, Morrisons and Somerfield. One of the biggest dynamos is the recently launched Marks & Spencer gift card.