Gift Cards Give Back to Small Biz

Like retail giants, small businesses stand to benefit from gift cards far into 2008.
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Many of us pushed our way through the crowds on Dec. 26 to score some clearance-priced wrapping paper. But if, like many Americans, you found a gift card in your stocking, you'll keep shopping well into the new year.

A survey by the

National Retail Federation estimated that gift card sales would total $26.3 billion over the 2007 holiday season, up 6% from the year before.

That's good news for big chain stores, but now small businesses may be getting a gift card bump too.

Until recently, gift cards had a certain stigma: "I couldn't think of anything else to get you."

Now, major retailers have added customized features to give cards a personal touch.

Starbucks

(SBUX) - Get Report

, which stacked up $1 billion in gift card sales in 2007, allows coffeeholics to design gift cards inscribed with a favorite drink order.

Borders

(BGP)

lets shoppers order gift cards with family photos on them.

Now it's easier than ever for small retailers to get in on the gift card action, says Dave Sievers, principal and leader of the consumer products practice at

Archstone Consulting.

"The technology to offer gift cards is no longer expensive," he says. "There isn't a huge barrier to entry."

They Keep On Giving

Offering gift cards can be the key to sales during the last-minute holiday shopping rush, but their economic benefit carries over into the new year.

Because gift card revenue is posted when the card is redeemed -- not when it's sold -- many purchases made with gift cards will show up on the books when business slows down during January and February.

Something Special

However, small businesses, more than big chains, have to make a special case for their cards.

"When people buy gift cards, they're looking for convenience," says Sievers. "Small businesses have to offer a specialty attraction, something you couldn't get elsewhere."

Start the process by reaching out to regular customers -- who will then ask their families for cards to their favorite store come holiday time.

As always, presentation counts: A survey by Comdata -- a company that sets up gift card programs -- found that 50% of gift card purchasers were more likely to buy one if it came wrapped in a box.

Secret Bonus

There's another bonus to selling gift cards, but it's one many retailers don't talk about.

A recent

Consumer Reports

survey found that 27% of customers who received gift cards during the 2006 holiday season had not used them until nearly a year later. This slippage could eventually add up to a nice little revenue stream.

And after two years an unredeemed gift card can be declared dormant, putting the value back on the retailers' books.

Just beware of the law: In 34 states, the government can claim a portion of that dormant money as unclaimed property.

Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.