Birth of the gift card mall
n 2001, the executives at Safeway Inc. saw increasing competition from discount retailers and big box stores and asked themselves what they could do to stay competitive. They realized they had had not fully exploited their biggest "hidden asset" – 15,000 people on average shopped at Safeway stores every week.
With 1,800 store locations in the United States and Canada, that number translated into 30 million shoppers a week.
So Safeway created Blackhawk Network and tasked the subsidiary to utilize that asset through an innovative concept known as a gift card mall – a cornucopia of closed-loop gift cards and other types of prepaid cards that offer the diversity of stores shoppers find in brick-and-mortar malls.
But how to implement that concept?
Teri Llach, Group Vice President at Pleasanton, Calif.-based Blackhawk, said there were four main steps to that process.
1. Select brands
Like shopping malls that house popular, name brand retailers, the gift card mall had to display cards from similarly well-liked businesses.
"So we very early went and got the best brands in all the categories," Llach said. "We wanted a mall that people wanted to shop in."
Using Safeway stores as a sort of petri dish for the experiment, Blackhawk populated the first gift card malls with cards from only seven retailers, including The Cheesecake Factory Inc. and Brinker International-owned restaurants, and displayed the malls in checkout lines. Consumer response to the initial malls was overwhelming.
"It was a homerun," Llach said.
2. Develop destination
Once Blackhawk knew it had judged right on the best brands concept, the network set about finding the best in-store locations for the malls. For Safeway stores, the ideal locations proved to be at the end of aisles where Blackhawk erected what it calls end-caps: large display units that can accommodate up to 500 cards each.
3. Merchandize and categorize
Then Blackhawk asked how consumers shop and concluded consumers shop by categories and monetary values loaded on cards. So Blackhawk arranged the cards in the malls to take advantage of consumer behavior.
4. Market it
The final main point was then to market the malls to make shoppers aware of them.
"Consumers need to know these things exist," Llach said. "You have to do in-store marketing, out-store marketing. You have to brand the experience."
The right stuff
After Blackhawk had done its research and tailored the malls to make finding and purchasing gift cards as easy as possible for consumers, it sent its creation out into the marketplace.
"So, it really was about creating a holistic program that we could then bundle together and go to different grocers and say, 'Would you like this, too?'" Llach said.
Evidently, they have. Blackhawk currently distributes gift card malls to over 80,000 retail locations, with the potential of reaching in excess of 165 million consumers every week. And those initial malls that displayed gift cards from only seven retailers have since blossomed to represent over 300 different brand names.
And it's not just gift cards; they also offer prepaid calling cards, travel cards and Visa Inc.'s reloadable debit card.
R & D
Blackhawk has conducted 50 studies into consumer behavior. According to Llach, shoppers, on average, spend about an hour shopping in supermarkets and shop 1.2 times per week. Furthermore, shoppers typically take 48 seconds to pick out items. But Blackhawk has found they linger over gift card malls in excess of two minutes.
"What we're finding is people are saying, 'Oh, I need a gift card for Sue, and she has a birthday and I want to spend about $25,'" Llach said. "They're deciding in the store, well, what kind do I want to get her? Do I want to get her an eBay card or a Nordstrom card or a Best Buy card. So, they like the browsing."
Additionally, Blackhawk has recognized a trend toward year-round gift card buying. Llach said the company used to see a major bump in gift card purchasing around Valentine's Day, Mother's Day, Father's Day and the major end-of-the-year holidays. But the percentage of total yearly purchases that comes around holidays is decreasing.
"What's happening is that the gift card usage or the prepaid card usage, that's spreading out [over the year]," Llach said "And that's a good thing, especially for my business. … I want people to feel confident and comfortable in using gift cards for a lot of different occasions."
Another trend
Nationally, Blackhawk distributes cards to such retailers as Ahold-owned and Food Lion LLC-owned supermarkets, Chevron Corp., CVS/pharmacy, Giant Eagle Inc. and Stater Bros. supermarkets.
Some of the companies represented in Blackhawk's prepaid malls include: American Express Co., Barnes & Noble Inc., Chili’s Grill and Bar, iTunes, Major League Baseball, MasterCard Worldwide, National Basketball Association, Nordstrom Inc., Sears Holdings Corp., Starbucks Corp., The Home Depot U.S.A. Inc., Visa and over 100 other companies.
But Blackhawk has also identified local merchants as prime targets for gift card malls.
'People love those great brands, the big national brands," Llach said. "But they also love to go down to their neighborhood restaurant once a week. They want to do gifting, and they want to support their local markets."
So Blackhawk has implemented the Local Stars program that tailors smaller gift card malls for neighborhoods, creating localized networks for the distribution of mom-and-pop merchant gift cards.
It's a "brand new program," Llach said. "And it is something that has been very effective for us."
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