More on Gift Cards and SB 460

Introduction by Amanda – Sean sent me the following after reading my post and the comments on pending legislation regarding Gift Cards, particularly Senate Bill 460. Sean tells me he has also sent this to Senator Ben Westlund, the chief sponsor of the bill, whose Chief of Staff Stacey Dycus kindly took the time to add information here. Posted with permission, of course. The bold highlighting in Sean’s post are the parts I find particularly compelling. It’s quite a hike out from my usual tracks to his store in Beaverton heading to Hillsboro, but I plan to stop in if I’m ever in the neighborhood of Iron Mutt Coffee Co.

While some may think of the “corporate bottomline” as a greedy entity of shareholders and high-powered suits, who are already “getting a fat piece of the pie”, there’s another more prevelant fragment of corporate America, the small business owner, that would be adversely affected by SB 460 passing. That’s me. And we’re a corporation (S-Corp to be exact).

As co-owner of Iron Mutt Coffee Co, one way that we’ve been able to raise revenue has been by selling gift cards, which we call Mutt Bucks. The gift card is a very important source of revenue for our business, accounting for 25% of our overall card sales. They help our small business survive by infusing money into our business up front, on the promise to pay for the services at a later date. The gift cards also cost us a fraction of the transaction fees that we would normally pay to Visa, which can be astronomical for a small business operating in a world of debit cards. Literally half of all our transactions are credit card fees; and at 12 cents per swipe, plus an average 2% of the overall transaction, gift cards help to offset hundreds of dollars just for our little small business. That puts money back in our pockets, and helps us to survive in the world of Starbucks & Dutch Bros. & Coffee Rush, etc. Bottomline, gift cards offset huge credit card transaction liabilities.

But we also use them as marketing tools, as a way to get people to come to our business. I typically hand out several $5.00 gift cards each month to people I meet on the street, as a way to entice them to come to our shop, and bypass their local Starbucks for at least one day. Does SB 460 account for the cards that I swipe myself, and give away? By the way, each gift card cost me $1.00 to purchase, 12 cents to swipe and 1-2% of the amount I put on them. So I’m spending at least $1.25 everytime I hand out a gift card to a potential customer on the street.

Also, we have seven elementary & middle schools within a mile of our shop. And every time I have a parent or PTA come in and ask for a donation for their school’s fundraiser, I swipe them a $10-$20 gift card. It’s the best way I can donate and contribute, market, and hopefully get a new parent to experience our coffee shop. Am I paying for this again in three years, because that gift card was never used, because the winner may be a Starbucks fan, or a non-coffee drinker, or is from out of state (or city for that matter)? Does SB 460 account for the $10-$20 that I swiped onto the card (remember, no money has actually transacted with this swipe)?

And here’s another big concern for the small business owner. The giftcard is payment up front for services paid at a later date. And those services are paid at a cost of goods (COG) profit margin. To clarify, let’s say the giftcard holder redeems the card within three years; then I’m covering the COG it requires to make their drink. On average, our COG profit margin is 65% to retail price; so my COG on a $3.00 latte is about $1.05. With SB 460, I would be required to pay the full retail amount of what’s left on the card, not what it would cost me to make the drink or product. In essence, since giftcards are cash(or credit), I’m paying retail on unused giftcard amounts ($3.00 to $3.00 retail), so I would be losing money, and a lot of it.

I know the folks in Salem have corporate gift card giants in their sights (restaurants and coffee chains, department stores and such), but a large and vast amount of companies which use gift cards are small businesses (mom & pop stores, restaurants, and coffee shops). And for most small business shops, like ours, gift cards are our life blood, and play a large part in keeping our doors open and business lights turned on.