Some businesses are selling gift cards to get by, but will it hurt them later on?

Print Friendly, PDF & Email
Many businesses are selling gift cards to keep them afloat during the coronavius epidemic. But once people start cashing in, how is that going to impact future revenue? (WYDaily/Picpedia)
Many businesses are selling gift cards to keep them afloat during the coronavius epidemic. But once people start cashing in, how is that going to impact future revenue? (WYDaily/Picpedia)

Restaurants and businesses have been shut down due to the coronavirus (COVID-19) outbreak, which is causing them to grasp for new ways of bringing in revenue.

Many local businesses have started to push the sale of gift certificates and gift cards as a way to manage the bills while their doors remain shut. However, it appears to be unclear how that will impact finances in the future.

“We really just won’t know until they reopen,” said Debi Schaefer, executive director of the Williamsburg Area Restaurant Association. “We are just going to see people doing different things because there is no right answer right now.”

Schaefer said there are about 100 members of the association and on Monday, 39 of them have had to close. Since they might not be able to sell food right now, they are trying to come up with any means to keep their business stable while the pandemic continues.

At Berret’s Seafood Restaurant and Taphouse Grill in Williamsburg, a new special on gift certificates has started where a patron can buy a certificate for $100 now and once the business reopens it will be worth $120, said owner Brian Mahoney.

Mahoney said the price point was carefully chosen to benefit the business now while not losing too much revenue later.

“There comes a point where if we give away too much money, then it ends up hurting us when we reopen,” he said. “So this seemed like a manageable amount.”

The restaurant is currently offering a to-go menu for guests but that doesn’t cover nearly all of the business costs.

While Berret’s rent for April is forgiven thanks to a waiver from Colonial Williamsburg, Mahoney said there are still other financial responsibilities that have to be taken into account.

“If we aren’t collecting money now and this goes on for several months, then we wouldn’t have a place to return to,” Mahoney said. “When this is all over and our employees come back, they need to have a place to come back to.”

At Casa Pearl, owner Mikey Maksimowicz said they aren’t running a special on gift cards but rather they are pushing gift card sales because all sales until April 10 will go to employee pay. 

Maksimowicz set that date because he said he hopes things would be better by that point but as the virus continues, the restaurant can at least try to continue paying their employees.

Currently, Casa Pearl has stopped all of its services and its 19 employees are not able to come into work.

Maksimowicz said there is at least some revenue coming in for now with the sale of gift cards.

“The way it works is the restaurant will take a hit down the road, sure,” he said. “But the great thing with gift cards is that they can be redeemed at any time.”

He said many patrons have already expressed they wouldn’t use the gift cards when the restaurant reopens but will rather wait a few months to let the business get back on its feet.

Vinod Agarwal, an economics professor from Old Dominion University’s Strome College of Business, said selling gift cards is a way of bringing in new and repeat customers.

“All of the retail places, they obviously try to market their products, this is one of the ways they can do this,” he said. “It’s sort of a hook for the customers.”

In terms of whether these gift cards help businesses such as retail shops and restaurants during the coronavirus pandemic, Agarwal said yes.

However, he noted the marketing technique will backfire if the customers are dissatisfied.

“So before you start issuing gift cards, you should also be quite confident that people who come to your place, should be happy,” he said.

What about face value gift cards or buying discounted gift cards worth more money than you actually paid?

“If you buy the gift card, they want to give you the impression you’re saving money,” Agarwal said. “But the store is also making money in the process.”

For example, if Costco was selling $100 gift cards to ABC stores, Costco must be making money and could be paying $50 for the gift cards with the consumer paying $70 or $80.

“In other words, the restaurants are giving a hefty discount up front to bring people in,” he added.

The Newport News Hospitality Association was not immediately available for comment.

RELATED STORIES:

Always be informed. Click here to get the latest news and information delivered to your inbox

Comments