Starbucks cashes in on success of gift and loyalty cards

If there are eight people in line at a typical Starbucks, chances are one of them paid up before even setting foot in the store.

In the five years since the Seattle-based coffee retailer launched its Starbucks Card, it's become a fixture in the wallets of millions of loyal customers. It's also emerged as one of the company's most heavily promoted and hottest-selling holiday gift items.

Most major retailers have been offering gift and loyalty cards for years, but industry observers say few have seen so many of their customers hang on to them as long, use them as often and reload them as regularly as they do at Starbucks.

"It's unique in the sense that most retailers aren't the kind where you have that everyday purchase," said Scott Krugman, spokesman for the National Retail Federation, a trade group based in Washington.

During last year's holiday shopping season, customers activated a record 15 million cards that raked in nearly $170 million once they were redeemed, accounting for 12 percent of the company's North American revenue stream that quarter.

"The card has exceeded our expectations, absolutely," said Sandra Stark, Starbucks' director of marketing-program management. "We knew it would be a great program. We had no idea that we would reach 12 percent of tender."

About 96 million Starbucks cards have been activated in the United States and Canada since November 2001, and customers have reloaded their cards about 38.6 million times, bringing in $2.17 billion in revenue.

Some fast-food restaurants have jumped into the fray recently.

Wendy's International started promoting its new gift card around Thanksgiving.

"Cards have become so commonplace in the retail sector that you really need to have one to be able to compete effectively," spokesman Bob Bertini said.

McDonald's and Burger King began offering customers reloadable convenience cards about a year ago. Both say they're pleased with the results they've seen so far but would not share any sales figures.

Starbucks has been promoting its card in display cases near counters, offering buyers free rhinestone-studded stockinglike holders. Stark wouldn't offer any hints about how card sales have been going in the early days of the holiday shopping season but said the company has high expectations.

So do many other retailers. The National Retail Federation predicts that gift-card sales in the United States will total $24.8 billion this holiday season — about $6 billion more than last year, based on a survey conducted by market research firm BIGresearch.

Companies can't claim the money loaded onto their cards as revenue until a customer redeems it toward an actual purchase.

They can, however, earn interest on unredeemed card balances, though Starbucks wouldn't disclose how much.