New Gift-Card Trend Swaps Stuff for 'Social Capital'

'Experiential' Cards From Companies Such as Smartbox Offer Rafting, Surfing, Weekend-Getaway Options

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Can't decide whether Grandma would prefer a surfing adventure in California or white-water rafting for her birthday? Swing by Bed, Bath & Beyond, lay out $69 and let her choose among those options and 98 others.

Smartbox and Zagat created a U.S. restaurant experience, the Zagat Smartbox Table for Two.
Smartbox and Zagat created a U.S. restaurant experience, the Zagat Smartbox Table for Two.

While consumers have begun to balk at cards offering static pre-paid purchases that lock them into one retailer, "experiential gift cards" from companies including Smartbox, Cloud 9 Living and Xperience Days are becoming more popular, because they allow creativity for the giver and flexibility for the recipient.

"People aren't looking for 'stuff' anymore, they're looking for experiences," said Susan Menke, VP-behavioral analyst at Mintel. "It's the new bragging rights. Status is out, social capital is in. ... You can post pictures of your African-safari experience, but you can't put up a picture of your Mercedes. That's tacky."

Smartbox offers gift-card boxes that retail from $49 to $369 at stores including Bed, Bath & Beyond, Sam's Club, Duane Reade and Papyrus, and online at Barnes and Noble's website. Inside the box is the card, of course, but also a book of the possible choices for such experiences as dinner for two in New York City (50 choices for $99); adventures like white-water rafting and surfing in California (100 choices for $69); and upscale getaways in the Great Lakes (35 choices for $369).

Experiential gifts, which are actually tallied under the estimated $300 billion gift industry vs. the $91 billion gift-card industry, are relatively nascent in the U.S. compared to the other places in the world such as the U.K. and Australia.

However, the handful of less-than-a-decade-old players in the U.S. is noting significant upticks in interest, as more retailers take them on to gain a cut of the sales. David Meyers, Smartbox CEO for North America and the U.K., said the company cleared $560 million in sales in 2010 in the 21 countries it now serves.

"In the U.S., this is really new, especially at retail," he said. "The growth is really happening now, and if I had to make a timeline, I'd say it started growing in the last two years. ... Retail is a priority for us, that's the linchpin of the company."

Although Smartbox has yet to do a traditional ad campaign, it has pushed out an aggressive public-relations campaign and more recently begun spreading its message via social media. Its partnership launched in November with Zagat to create its U.S. restaurant experience, the Zagat Smartbox Table for Two, and was marketed at Valentine's Day with PR and a social-media promotion. Smartbox fans on Facebook and followers on Twitter could access recipes and prep instructions from high-end New York restaurants, as well as 10% discounts on the experience.

Another U.S. player, Cloud 9 Living, a privately held company founded in 2005, sells its gift-box experiences (gift card, personalized message and a detailed explanation of the experience) online. Bobby Augst, director of supplier relations at Cloud 9, said in an email that while the market is still growing, at least a measurable percentage of consumers in the U.S. are now familiar with dedicated experience gift companies like theirs.

"The goal is to get to the point where experience gift companies like Cloud 9 Living are household names that people think of when giving a special/memorable gift," he said. "We have a long way to go, but our steady and rapid growth and consistently positive customer feedback are encouraging."

Cloud 9 also uses social networking on Facebook and Twitter for marketing, as well as email marketing to its customer and gift-recipient databases. Like Smartbox, it also supplies gift experiences to a variety of the credit-card industry's reward programs and brands itself there.

"All happiness research points to the fact that it's not the things you have that make you happy, it's the experiences you have," said Pam Danziger, president of Unity Marketing. "The lag in experience gifts and the lag in consumers recognizing it was an option surprised me, but marketers are catching on now."

Gift experiences have the added bonus of making the giver more memorable. You won't remember who gave you socks or a sweater, but you'll probably recall who gave you an experience where a memory was created, Ms. Danziger said. "A gift is a connection between me and you, and things have far less meaning than experiences."

What happens to all those unused gift cards?

"You can't swing a dead cat without hitting a gift-card rack at most retailers," said Bruce Bower, CEO of gift-card exchanger Plastic Jungle.

Plastic Jungle's Bruce Bower
Plastic Jungle's Bruce Bower

But the colorful plastic cards aren't just cluttering grocery aisles, they're also lingering in junk drawers and catchall baskets around consumers' homes. About 27% of people who received a gift card in 2009 still hadn't spent it in 2010, according to the 2010 Consumer Reports Holiday Shopping Poll.

Brian Riley, research director at TowerGroup, said the unused value of gift cards, which includes lingering cards as well as lost and expired cards, and the fees laden on them, amounted to 10% of industry sales, or $8 billion lost, as recently as 2007. However, he said, thanks to regulatory overhauls and increased consumer awareness, that has dropped to around 3% or just $2.5 billion lost, in 2010.

For Plastic Jungle -- and other companies that buy, sell or exchange gift cards -- that presents an opportunity. Plastic Jungle, now 4 years old, tallied $10 million in sales last year, an increase of 500% over 2009 by buying more than 100,000 "misgifted" cards last year at an average of 80 cents on the dollar and selling them at discounts ranging from 5% to 15%. Sellers can trade cards, get Amazon credit (with a premium bonus of 5% if they take that option), or have funds deposited to a PayPal account.

Mr. Bower said that while most gift cards are bought and used relatively quickly, some 6% to 8% are simply unwanted by the recipient. Some people try buying and selling them on traditional exchange services such as Craigslist or Ebay, but fraud can be a problem. Intermediated gift-card exchange websites and services offer another option.

Overall, gift-card sales are on the upswing. Mr. Riley said sales in 2010 were $91 billion and will top $100 billion in 2011, continuing a growth curve that restarted last year, after two years of recessionary-related spending dips. "There was a shift from less luxury to more general-purpose cards," he said.

Specifically designated in-store card sales dropped 9% in 2010, for instance, while general-purpose-gift-card sales increased 3%. "Prepaid cards are huge, but gift cards as a subset of that are less popular," said Susan Menke, VP-behavioral economist at Mintel. "People don't want to be locked in."
-- Beth Snyder Bulik

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