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OWNERS EMBRACE MALL GIFT CARDS

BY JO ELLEN MEYERS SHARP

From a consumer perspective, the mall gift card, barely two years in existence, is a convenience. To shopping center owners, it has proved to be an effective brand extension — and a lucrative revenue stream.

The trend goes back to October 2002, when Simon Property Group and Visa U.S.A. created a Simon-branded prepaid card good wherever Visa was accepted, inside or outside the mall. The following month General Growth Properties launched a similar program with Visa in five Chicago malls.

Last year the 6 million gift cards Simon sold generated some $340 million, up roughly 30 percent from 2002. This year, as of May, the program was already about 28 percent ahead of last year. Approximately 150 Simon centers sell the cards, which are also available on the company’s Web site.

“That’s a very big success,” said Stewart A. Stockdale, Simon’s chief marketing officer and the president of Simon Brand Ventures. Even more impressive is the fact that 85 percent of the cards are used in the company’s own malls, he says.

“That’s big loyalty,” Stockdale said. “Ours is the largest program by far in the country, bigger than banks’ [prepaid cards].”

Mall owners and managers are still coming on board. In May Glimcher Realty Trust, Columbus, Ohio, signed a three-year deal with Visa to operate a mall gift-card program at 25 Glimcher properties. Then, in June, CBL & Associates Properties formed a partnership with American Express for a gift card program at 31 of its shopping centers in the fall.

The plastic cards replace paper certificates and come packaged as gifts, tucked inside envelopes and with ribbons or other accessories. They are used at stores and restaurants as well as for Internet, mail or phone purchases. Portability is what makes the prepaid mall card different from retailer-issued gift plastic, which can be used only at the branded stores.

Mall gift-card denominations generally range from $20 to $500, with the upper limits set by the mall owner and the issuer. A particular card could have additional limits. The American Express-CBL mall gift card, for instance, is good only at CBL malls.

Meanwhile, General Growth is boldly expanding its own designs. Last month the firm announced the rollout of a new program with American Express to offer co-branded cards at 80 General Growth malls this year and at the rest of its 177 centers next year. This program, too, is restricted to the owner’s properties.

The participating malls of both companies will offer the American Express Universal Card as well, good anywhere American Express is accepted, inside or outside the centers.

American Express provides all the services necessary to support the cards, including issuing and processing, says James W. (Wally) Brewster, SCMD, General Growth’s senior vice president of marketing communications. In addition, American Express has “a real understanding of dealing with changes and legal issues” that could arise, Brewster says. And given prepaid cards’ newness in the mall industry, he adds, there are probably still a significant number of such issues to work through. “American Express was the best product at resolving as many of those issues as possible,” he said.

Most issuers will replace lost or stolen cards, though some may not, sources say, and holders can go online to track the amount remaining on a card.

Mall owners see these cards as a service to customers, says Sean O’Toole, vice president of North American prepaid services at American Express. O’Toole worked on the CBL deal, which calls for American Express to administer the program.

Customer service is critically important in the mall business, and the gift card is another chance to do that, agrees Barbara Ivankovich, SCMD, vice president of mall marketing and corporate relations at CBL, which owns or manages 165 properties, including 65 enclosed malls. The cards also “give us a flexible way of branding the CBL name,” she said.

But even more important is the income stream these programs have generated. Prepaid cards in general are the fastest-growing gift segment, with sales rocketing from $22 billion in 1999 to $72 billion in 2003, according to TowerGroup, a research and advisory firm to the financial services industry.

Shopping centers want to connect their names to some of those dollars. Mall owners receive a portion of the purchase fee, representing an up-front charge to cover the administration of the program. The fees generally run from about $1.50 to $3.95 per card. A portion of this also goes to the card issuer.

Simon has moved its branded gift-card program into professional and college sports and other areas. The firm has Visa cards stamped with the logos of the National Basketball Association’s Indiana Pacers (Melvin and Herbert Simon, co-chairmen of the firm, are part owners of the team) and the San Antonio Spurs. The Simon-Visa consortium also offers a card for alumni and supporters of the University of Texas. More such deals, called affinity programs, are pending, Stockdale says.

Simon, Visa and Bank of America have been on the cutting edge of these programs, says Todd Brockman, vice president of prepaid products at Visa U.S.A. Simon has been increasingly effective in designing, marketing and distributing the cards as a Simon product, he says.

“We’re far from saturation,” said Stockdale, adding that he is examining other ways to get the Simon name on plastic.

Prepaid payroll cards are already on the market, good for cash at ATMs and used as a debit card at retailers and over the Internet. Look for these to be branded by local mall owners too.

There are a few problems with prepaid cards that need to be worked out, though. Some cards lose value if holders do not use them within a set period of time; state officials and consumer groups have objected to that and to card devaluations and expiration dates, as well as monthly fees and similar charges.

The state of Connecticut, for one, has banned expiration dates and inactivity fees. The issue is also under discussion in the legislatures of New York and Florida, and some consumer advocates are even calling for congressional action.

To seek solutions, the National Retail Federation has joined with retail companies, trade groups and others to form a working group to find solutions at the federal level instead of having to deal with disparate state regulations. (Some national companies, in fact, have already chosen to drop fees and expirations rather than try to track regulations state by state.)

“There has been a backlash about hidden fees,” said O’Toole of American Express, noting that a lot of the confusion is avoidable if companies are up front about how the programs work. CBL, General Growth and Simon all insist that they do that.

Once consumers know, O’Toole says, they are willing to pay the purchase fees rather than allow a card to diminish in value through nonuse.

“That’s one of the major reasons a lot of property developers are as attracted to the plans as they are,” he said.

But if a business relies on hidden fees, the legislatures will investigate, he says. “It’s really important to be consumer-friendly. That resonates very, very strongly.”