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A Prescription for Merchants To Avoid Escheatment (Tough Luck NJ! )

By Tim Sloane
March 16, 2011
in Mercator Insights
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New Jersey estimates it will collect $79.58million in the fiscal year ending June 30th (based on its newescheatment law), but not if merchants wise up. After all, thisisn’t New Jersey’s money, it belongs to the consumer. Merchantsindicate that they are concerned about the cost associated withcollecting Zip Code information, but Mercator Advisory Groupsuggests that they should instead implement an all out effort tocollect as much detailed information about the cardholder aspossible – here’s why.

Mercator Advisory Group has been advising merchants to focus onsales, not breakage, for two years now and New Jersey simply makesthis recommendation more relevant. Gift cards are most valuable toa merchant when redeemed for high margin products. Typical upliftcan be between 40% to 50% and more – although this does varydepending on the average ticket, gift card value, and type ofmerchandise. Still, uplift is significant even withoutmerchandising. However that lift can be made even more valuable bysteering your cardholders to high margin items – which happen to bethe same items they desire since lift is generated by thecardholder’s desire to splurge with the “found money.”

So, a poorly operated gift card program has high breakage and islikely facing the issue of escheatment with trepidation. A properlymanaged gift card program will look at escheatment as a lostopportunity. In fact, management should measure gift card programsnot just for gift card sales volume, but also for the percent ofgift card units redeemed in full, the lift generated by gift cardpurchases, and the success of drive cardholders to purchasetargeted merchandise or store categories.

So don’t just get a Zip Code, get the email address or better yetthe full snail mail address. Send reminders to cardholders thatthey have a balance. Invite cardholders to participate in specialevents. Send special offers to cardholders that provide uniqueopportunities to spend the balance that they have. Offer thecardholder a discount coupon for twice the value of the gift cardfor a high ticket item. Just make sure that the cardholder receivesthe full value of the gift card so that when the states ask forescheatment all they get is a great big goose egg because the goldhas already been used as tender.

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