It has become one of the most ubiquitous gifts given on birthdays and the holidays.
Versatile and convenient, gift cards have become a $124 billion industry in the United States. And while most consumers buy them off racks in big box stores, a Green Tree company has been carving out its niche as a place to buy gift cards online.
“People are moving in droves online to look for gift cards,” said Jason Wolfe, founder of GiftCards.com.
Wolfe’s company works with banks, merchants and card networks including Visa and MasterCard to deliver a range of gift cards sold exclusively online. GiftCards.com makes and sells the physical cards and their electronic cousins, so-called eGifts, and handles customer service out of a facility on Mansfield Avenue.
The company in Green Tree sold its 6 millionth card last month and expects to reach $200 million in sales this year. It makes a commission of up to 5 percent on the face value of branded cards it sells on its website for restaurants and retailers, such as Red Lobster and Staples. It charges a $4.95 fee for customized cards for companies and individuals that act like debit cards.
GiftCards.com says that it is the “highest-ranking and most-trafficked gift card website on the Internet,” according to online traffic data collected by research firm Compete.com. But the dominant sphere for selling gift cards remains in physical stores. The company’s revenues are a fraction of competitors who dominate the “offline” market in supermarkets and big box stores, such as California-based Blackhawk, which had $1.4 billion in revenue last year.
Still, Wolfe likes his position. Virtual gifting is the future of the industry, he said, and he owns the domain name and the nimble infrastructure to capture customers online.
“We have virtual gifts, we’ve been selling them for years,” Wolfe said. “They (competitors) can’t because of the nature of it.”
The company’s emphasis on online is no accident. Wolfe latched onto e-commerce in the 1990s once he taught himself how to code software by reading a couple of manuals. GiftCards.com traces its roots to 1999, when Wolfe started selling gift certificates on directcertificates.com . He bought the domain GiftCards.com in 2002 and spun it off as its own company in 2006.
By 2009, he said, GiftCards.com had $44 million in sales.
Besides its domain name, the company’s advantage is in its ability to offer customized cards in small batches. The industry is characterized by thin margins, which means that companies have to sell large volumes to make money. Wolfe invested in equipment that could print customized cards.
About two-thirds of the company’s revenue comes from corporate customers, such as Coca-Cola, General Electric, United Parcel Service, which hire GiftCards.com to produce cards for employee rewards programs or that sales staff can pass out to clients. The rest are individual consumers.
GiftCards.com can print in batches from one to 100,000, and being able to offer a customer a unique card has addressed one of consumers’ central hang-ups about gift cards — that they are impersonal. A car dealership could order cards with images of its sales team, for example, or an individual could have a family photo printed on a card given to a relative.
“I think for us, the ability to do personalized create-a-card, and our corporate product, those two products enabled us to be competitive in the market space because we had something unique that you couldn’t get at Wal-Mart,” Wolfe said.
There are challenges, however, particularly around security. Gift cards have become a popular target for hackers who purchase them with stolen credit cards, and then empty the balances. There’s no way to track a gift card to an original owner because the cards are not registered with a person, and so catching thieves is difficult. Gift card companies must shoulder the losses if they don’t catch the fraud within a few days, said Brian Riley, senior research director at Arlington, Va.-based CEB TowerGroup, which tracks the gift card industry.
GiftCards.com lost $500,000 last year because of fraud, Wolfe said, and the company is constantly trying to improve its security protections.
“A smaller company doesn’t have that robust fraud department,” Riley said.
Despite the company’s growth, it is likely to remain smaller than its competitors for some time as it focuses exclusively online. The fledgling market for e-gifts is promising but accounted for less than 5 percent of gift card spending last year, according to CEB.
The strongest sales are still out in physical stores.
“It’s pretty easy to go to a Wal-Mart and be able to pull a gift card off the J-Hook,” Riley said. “That distribution network is very powerful.”
The market for e-gifts are likely to follow new mobile payment technology like Apple Pay, which lets users make payments using their iPhones, Riley said.
Wolfe acknowledges that consumers have been slow to come around to digital gifting. And there will have to be a lot of education involved, which would be costly for a smaller company like his. But he believes it is the future of the industry.
There was a time when many people who wanted to rent videos preferred to go to a Blockbuster store. Now, many of those same people watch movies or TV shows through streaming online with Netflix.
For now, Wolfe is focused on improving online marketing and rolling out a rewards program for GiftCards.com shoppers.
“We feel that our traffic will continue to grow, but that our traffic will buy more from us because we’re going to have a more broad product mix,” he said.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected]