After adopting a gift card program, women's specialty retailer Chico's eliminated gift certificate fraud and enabled gift card users to more easily buy merchandise online and from its catalog.
Think about how many times per day customers buy merchandise with credit receipts or gift certificates and what it costs your company to maintain these paper-based practices. Would you have a hard time determining those statistics? If so, your business has at least one thing in common with the way Chico's (Fort Myers, FL) used to operate its stores.
Paper Trails Lead To Paper Stacks
Since its inception in 1983, Chico's has grown from a 1-store operation to a 406-store nationwide chain. Additionally, customer service initiatives such as a catalog and e-tail site have been added to its repertoire. While these initiatives were steps in the right direction, paper-based gift certificates and store credit receipts were keeping it from realizing its full customer service potential. "Customers who wanted to use gift certificates or store credit receipts to buy merchandise from our catalog or our Web site had to first mail in their certificates or credit slips," says Scott Bader, POS manager for Chico's. "The order was held until we received the certificate or credit slip, which was frustrating for the customer, and it was a management nightmare for us." Additionally, if a customer claimed that a gift certificate had been lost or stolen, it was a daunting task to research and verify the claim. First, the CSR (customer service representative) had to find the approximate date and time the certificate was purchased, the purchase amount, and the store where the certificate was purchased. Next, the CSR would have to search through archived transactional data and try to pinpoint the transaction confirming that the certificate had been purchased. After verifying the original certificate issue, the CSR had to verify that the certificate hadn't been redeemed at another store - or via the catalog or Web site. If evidence was found indicating the certificate or credit slip had been redeemed, the store manager was in a difficult predicament. "It's a hard call whether to reissue another certificate or not," says Bader. "If you don't you might cause a valuable customer to go somewhere else. If you do, you may set yourself up for fraud." Con artists who discover that a retailer will reissue "lost" certificates may show up at your stores ready for handouts.
There were additional problems that paper-based certificates and store credit receipts posed - general ledger reconciliation. Because certificates or store credit slips may be issued at one store and redeemed at another, it was difficult for accounting personnel to match the purchase receipt with the redemption slip. "Even though certificates can be numbered, there is still a lot of room for errors," says Bader. Any time you mix manual data entry with multiple stores and ordering channels, there are bound to be problems.
Replace Paper With Cards
In February 2002, Chico's made the decision to replace gift certificates and store credit receipts with a gift card program. The retailer looked at several solutions over the course of a four-month period. Whether or not to outsource its gift card program played a big role in the selection process. After discovering SmartClixx' (Raleigh, NC) stored value card (SVC) application, Chico's decided to run its gift card program in-house. "The three biggest benefits to running the program in-house were: having better control over our costs, owning and controlling the data, and having the option to own the software license after three years," says Bader. "With some solutions, retailers pay fees [called click fees] each time a user performs a task that causes the solution to search the gift card database. This would include activities such as recharging gift cards (on the phone or over the Internet), checking card balances, ordering/returning merchandise, or reporting stolen cards." A major problem with paying per click is that the retailer never knows what its monthly costs will be. And, it has to take the outsourced vendor's word for how many clicks customers accumulate per month.
Another benefit of an in-house gift card program is the retailer owns its own data. This provides a greater sense of data security and eliminates paying for analysis reports.
The third benefit that attracted Chico's to the in-house gift card program was that it offered the retailer the opportunity to purchase the software licensing after three years and never have to pay licensing fees again. "By owning the software license, we will just have to pay for the gift card production and software maintenance fees," says Bader. "Additionally, we will have the flexibility to be as creative with the product as we would like with no concern for card or transaction fees."
Plan Ahead For Gift Card Success
By June 2002, Chico's selected SmartClixx' gift card program and began planning the rollout. "We took nearly three months to plan out all the gift card program business rules," recalls Bader. "We wanted to come up with a program that was unique to our business philosophy - even if no one else did it that way." For example, Chico's set up its program to accept post-sale voids. Customers who purchased gift cards, then changed their minds afterwards, could get cash refunds. Also, customers who had balances of less than $10 on their gift cards would receive cash refunds on the balance. "We knew some retailers were taking advantage of the breakage and making large sums of money by not giving cash back on a gift card redemption, but we didn't feel these practices were in the best interest of servicing our customers," says Bader.
After finalizing its business rules, Chico's was ready to integrate the SVC application with its headquarters systems, retail transaction switch, and POS application. "Because SmartClixx already had relationships with our other software vendors, the integration process went smoothly and took only four days to roll out," says Bader. By November 2002, just before the holiday rush, the new solution was in place. Even before implementing its new gift card program, Chico's experienced a big gift card demand from customers. Says Bader, "Our gift card sales for the 2002 holiday season were nearly double the gift certificate sales the previous year."
Unlike paper certificates and credit slips, Chico's SVCs have several built-in security features that protect customers and the retailer from theft and fraud. Each SVC features a 16-digit account number, 8-digit CVV (card validation value), and 4-digit PIN. If a card is lost or stolen, customers can call a 1-800 number and have the card immediately deactivated and reissued.
Also, unlike its predecessors, the gift cards can be used to make purchases online or through Chico's catalog without any extra lag time. With the new SVC program, Chico's no longer has to sort through stacks of receipts, and accounting personnel no longer have to manually match certificate purchases with redemption slips. Bader anticipates the solution will pay for itself within a one year time frame.
If you haven't yet looked into a gift card program, consider what's holding you back. Maybe it's no big deal to use certificates and credit slips - no one's complaining about how things need to change, after all. Comparing where your gift program is now to where it could be, however, might reveal that it's time for an overhaul.