Retail Gift Cards: Guide to Gift Cards for Small Businesses

Want to offer gift cards in your small business? Learn how to create a gift card system in your POS and use them to increase sales.

Gift cards are big business. The digital gift card industry alone is expected to reach ​​$2,076.51 billion by 2027. 

Gift cards give your customers the chance to share their love for your brand with others. Your customers can use these prepaid cards to make purchases from your store both in person and online.

While offering gift cards isn't a new idea, it’s an increasingly important way to grow your retail business. Customers love gift cards because they can buy what they want from your store. 

Plus, 42% of consumers report spending more when they’re using gift cards than they normally would. Your gift card program can lead to higher average order values and sales.

Want in on the action? This guide will walk you through the benefits of gift cards, how to process them in your business, and tips for running a successful gift card program. 

Benefits of accepting gift cards as payment

Increase revenue

Gift card sales bring in money when they’re purchased, but they also offer an opportunity for additional revenue when they’re redeemed. That's why retailers like Amazon, Adidas, Michael's, Macy's, Best Buy, Home Depot, and Lowe's all incorporate gift cards into their sales strategy.

Shoppers with gift cards are also more likely to purchase some of your higher-priced items since they see the gift card as being “free money” to spend. And here’s another fun revenue fact: 61% of consumers spend more than the value of the gift card, overspending by $31.75 on average. 

More than half of consumers spend more than the value of a gift card when they use it.

Find new customers 

Gift cards can expose your business to people who may not have otherwise shopped in your store. Customers who already know and love your business will purchase gift cards for friends, helping to grow your customer base. Research shows that 52% of people bought a gift card to give someone else in the past 12 months. 

You can also give gift cards when you’re asked to make a donation to a local fundraising event. By providing a gift card in lieu of a product or service, you open the door for the recipient to use their prize as they like and perhaps spend some extra money in the process. Providing gift cards to fundraisers also boosts your brand recognition and creates a reputation of your being a business owner who supports their community.

Research shows that 52% of people bought a gift card to give someone else in the past 12 months.

Drive people to your website

The giver can conveniently purchase a gift card through your website, saving a trip to the store — perfect for last-minute gift purchases. The card is emailed to the recipient, eliminating the need for paper or plastic gift cards or certificates.

This is increasingly popular; nearly 40% of consumers prefer digital gift cards that are scanned from their phone over a physical card, according to research by Gift Card Granny.

Increase customer loyalty 

Gift card promotions, especially around the holidays, can be a great way to increase loyalty with your current customers. For example, offer a free $10 gift card to customers who purchase $100 in gift cards.

This type of offer might encourage a purchaser to spend more money, driving up the average amount of your gift card sale. You can make the bonus gift cards valid after the holidays and for a short period of time, boosting sales during the (usually slower) first quarter of a new year.

READ MORE: 8 Ways to Use Gift Cards to Build Customer Loyalty

Increase post-holiday sales 

Gift card sales, both physical and digital, tend to spike during the holiday season. Gift cards make great last-minute gift before Christmas; brands report up to a 114% increase in gift card sales in November and December of 2021. 

Retailers love the jump in sales that happens during the fourth quarter, but it can make January and February feel slow. Gift cards, however, often bring recipients through your doors during the lull as they spend their present after the holiday rush, thus increasing your first-quarter revenue.

Gift card sales grew 114% during the 2021 holiday season for retailers.

Help you compete with major retailers

Giving a gift card can feel impersonal, but when it’s from a giver’s favorite store, it feels like more thought went into the selection. That means smaller retailers that offer gift cards can compete with or even beat out large stores.

Take notes from a retailer like Nordstrom. You’re able to personalize a gift card with the recipient’s name as well as your preferred design. As noted, it can be sent either digitally or by mail.

Let your current customers know that you offer gift cards, so you’re top of mind when they’re in the market for a special gift. Display your gift cards near the cash register. Use signage around the store that promotes your gift card options to shoppers as they browse. And include gift card offers in your email marketing and social media campaigns.

Use to manage returns 

If a customer wants to return an item to your store but doesn’t have a receipt, offering a gift card instead of a refund is a great way to keep their dollars in your business. This can also be an option if a customer wants to return an item after your regular grace period. It gives the customer something better than a refusal, and you’re likely to keep them satisfied and coming back to spend the amount later.

Retailers can also use gift cards as a reward for employees and customers. Offer your best salesperson a gift card as a reward for their hard work, or give your VIP customers a gift card as a thank you. You can also incorporate gift cards into your loyalty program as a reward for multiple purchases with your brand.

READ MORE: How to Reduce Returns and Sell More With Store Credit

Types of retail gift cards

There are three different types of gift card services for retail businesses: closed loop, open loop, and digital gift cards.

Closed loop

A closed-oop gift card is exclusively to buy products from one company. For example, that Starbucks card you get from your boss or favorite aunt during the holidays is a closed-loop gift card. 

Also known as a store gift card, it has the company logo on it, letting the receiver know where it can be redeemed. Givers can purchase these cards directly from the store. They require no fee to activate and can be used right away.

Closed-loop gift cards are sold by merchants, and can only be used at that same merchant.

There are also cases where gift cards can be used within a group of stores. For example, a GAP gift card can be redeemed at related stores like:

• Banana Republic
• Old Navy
• Baby GAP

For a small business, a closed-loop gift card is a good place to start. They are easy to create and track, and less complicated than implementing an open-loop gift card program. Closed-loop cards often require lower processing fees for the business. Plus, customers can use them in-store or online just like a debit or credit card. 

Open loop

An open-loop gift card is a gift card by somebody like Visa, American Express, Mastercard, or Discover. It’s redeemable anywhere the credit card is accepted: in store, online, or by phone. These are typically offered by banks. 

Open-loop credit cards can be used at restaurants, retail stores, grocery stores, and even to pay non-recurring bills. They are flexible, like cash. 

Digital gift cards

Digital gift cards, or eGift cards, remained steady in 2021 with 84% of respondents indicating that they purchased a digital gift card during the holidays. 

Digital gift cards, electronic versions of a physical gift card, can be sent directly to a person’s email address, mobile app, or SMS. The receiver can use the digital gift card online or in-store by scanning a barcode. Some 36% of consumers prefer digital gift cards over physical, while 29% prefer physical and 35% have no preference, according to a Gift Card Granny poll.

Some 36% of consumers prefer digital gift cards over physical.

Customers can redeem these gift cards on any of your sales channels, such as:

• Online store
• Facebook Shop
• Messenger
• Shopify POS
• Pinterest

The best part? Digital gift cards can’t get lost. Unlike physical gift cards, which 41% of people end up losing, a receiver typically inputs contact information and other identifiers. Plus, the digital gift card is on their phone, which makes it easy to keep track of and replace if the recipient can’t find the original email or SMS. 

💡 PRO TIP: With Shopify POS, you can sell physical and digital gift cards that can be redeemed both in store and online. Sell physical gift cards in store, email digital gift cards to customers, and let them redeem their gift card wherever they prefer to shop.

How to accept gift cards at your retail business

Now that you know the different types of gift cards, let’s look at how to accept them at your retail business:

• Get a POS system that accepts gift cards
• Understand gift card laws
• Create physical and/or digital gift cards
• Use a gift card app

Get a POS system that accepts gift cards

If you already accept debit and credit card payments at your retail store, you can accept gift cards. You’ll need a point-of-sale (POS) system to sell and redeem them. 

Setting up a gift card system through your POS also makes it easy to create, promote, send, and track gift cards because it’s already integrated with your store and website. It’s also often a free feature you can enable in seconds.

If you are using Shopify POS, you can simply activate the gift card feature in your Shopify admin. When you sell a gift card, the customer will receive an email that contains a unique gift card code they can use at checkout (online or in-store) to redeem its value. 

📌 GET STARTED: Ready to start selling digital and physical gift cards? Go to your Shopify admin and activate the gift card feature to get started.

Gift cards are sold like a product, but sales are reported differently. Make sure your POS system can track gift card sales and account for gift certificate or card purchases. 

Understand gift card laws

Laws and regulations about gift cards vary based on region. To find out about any regulations that apply to your business, such as whether to charge tax or for how long a gift card must stay valid, consult a local tax or legal expert. (California, for example, does not let you add an expiration date to gift cards.)

The National Conference of State Legislatures goes into detail about gift card laws in each state, which are based on the CARD act of 2009. The law provides that gift cards are not allowed to have an expiration date within five years of their issue date. 

It also limits inactivity fees if gift card holders haven’t made a transaction for a long time. Keep in mind that this is a federal law and states can still add their own modifications on top of that law. 

Create physical and/or digital gift cards

Once you’ve activated the gift card feature in your POS, it’s time to create your gift cards. As a retail store owner, you’ll want to keep physical gift cards on hand; 42% of consumers purchased a physical gift card at least every three months, according to a recent survey from the Blackhawk Network. 

If you are using Shopify POS, you can buy physical gift cards from the Shopify Hardware Store in the following countries:

• United States
• Canada 
• United Kingdom 
• Ireland
• Germany 
• European Union
• Australia

You can also create digital gift cards to print and email to customers. In your Shopify admin, you can customize the look and value of your gift cards. Watch the video below to learn more about setting up digital gift cards for your store. 

Use a gift card app

Another easy way to set up a small business gift card system is with a gift card app. These apps work separately from your POS, and allow you to create, sell, redeem, and track digital gift cards through a dashboard or mobile app. Gift card apps also integrate with your POS system. 

For example, if you’re using Shopify POS, you can choose a number of apps from the Shopify App Store:

• Rise.ai
• Growave
• Govalo

These apps help you build an enhanced gift card experience for your customers. You can send branded, digital gift cards and vouchers directly to recipients through email or SMS. Recipients can use them online, in-store, or across multiple stores. Remember, these apps will charge you a monthly fee for the service and/or a percentage of your total gift card sales. 

💡 PRO TIP: If you're transferring a large number of gift cards to your new Shopify store, try Selling Point for easy migration.

How to process gift cards for small business

Your POS system may come with built-in gift card functionality. If not, it might be an extra feature you’ll need to pay for. If that’s not an option, try integrating a third-party gift card app to help you process transactions. 

Again, how you process gift cards depends on the type of POS system you use and the type of gift cards you’ll offer. For example, if you use the Shopify POS system, both Lite and Pro POS system plans come with gift card functionality.

Shopify POS enables you to sell both digital and physical gift cards customers can redeem in-store or online. Once you’re ready to issue a physical gift card, Shopify’s POS system can print it with the receipt printer. If you’re looking to offer digital gift cards, Shopify users can easily turn on the built-in gift card feature to get started. 

There is no charge to activate or accept gift cards through Shopify. They can be purchased or redeemed at your POS or in your ecommerce store, or on social media channels like Facebook and Pinterest. 

Tips for optimizing your gift card program

Whether you’re running your first or fifth gift card program, keep the following tips in mind:

• Offer gift cards for returns and exchanges
• Tie gift cards to a loyalty program
• Reward referrals with gift cards
• Offer digital gift cards
• Make gift cards available everywhere

Offer gift cards for returns and exchanges

Consider offering gift cards for returns and exchanges. Sometimes, customers will walk in to return items sans receipt or after the return period has ended. This is a great opportunity to offer a gift card with store credit to ensure spending stays within your store. 

A great example comes from Target’s return policy FAQ. It outlines what original purchases can qualify for a gift card refund option. The only way you can’t receive a gift card return is if you paid with check or debit card. 

Swapping returns for gift cards is easy when your POS has built-in gift card processing. It’s also a great opportunity to make a sale and increase average order value. If a customer buys online and returns in-store, you can encourage them to shop around and spend the gift card immediately. 

Some brands are viewing returns as an additional touchpoint, offering an extra discount if you use the store credit the same day.

Kyle Monk, Director of Insight, British Retail Consortium

Tie gift cards to a loyalty program

A loyalty program rewards customers for shopping frequently at your store. Kohl’s Cash is the way Kohl’s ensures its customers keep coming back for more. For instance, for every $50 you spend at its stores, Kohl’s rewards you with a $10 gift card. The more the customer spends, the higher the gift card reward.

Reward referrals with gift cards

Gift cards are a great reward choice for a referral program. They’re a great alternative to cash rewards, and give customers flexibility to choose their favorite gifts. Gift cards are also easy to manage and give the illusion of free money, since nothing comes out of their own pockets. Customers can spend them right away or come back another time. 

Referral programs work both in-store and online. Active lifestyle brand Outdoor Voices promotes a generous referral program, Give $20, Get $20, on its website. 

The structure is simple. The friend gets $20 off the first purchase of $100 or more, and the advocate gets $20 off their purchase of $100 or more. It’s a win-win for both customers, and your business, because you’re generating more sales without extra marketing work. 

Offer digital gift cards

As we’ve seen, digital gift cards are growing in popularity among consumers. These gift cards make it easy to for customers to receive and use gift cards because they’re stored on the customers’ phones.

Retailers like Sephora make the gifting process for eGift cards simple. The brand a portal where you can easily enter your information to send a digital card to that special someone.

Including a menu option in your online storefront where customers can click to send digital gift cards is an easy way to capture more sales. Once that’s set up, it can be an automated process that runs in the background as an additional stream of revenue.

Make gift cards available everywhere you sell

It’s clear that gift cards are an easy way to boost sales and bring in new customers. Make it easier for customers to gift from anywhere and introduce your business to their friends and family. 

With Shopify POS, you can sell gift cards in a few clicks anywhere you sell, be it:

• In-store
• Online
• At events
• Social media

Social media platforms may allow you to share gift card products by using the link to the product in your online store. Customers can then buy a gift card from your online store to receive a gift card code. You can even issue gift cards without a customer purchasing it, for example, if you need to resolve customer issues or run a giveaway promotion. 

Start accepting gift cards at your retail store

Again, gift cards are an effective way to increase sales and brand awareness. Both retailers and online businesses can lean into the power of gift cards, offering them to customers as gift options and upsells during the holiday season.

Remember, the best gift card program depends on customer preferences. If you offer gift card options like closed-loop and digital, and find different ways to reward customers with gift cards, you’ll soon see a surge of sales and customer loyalty in your retail business.

This post was originally written by Stephanie Vozza and has been updated by Michael Keenan.

Gift cards for retail stores FAQ

How do gift cards work for retailers?

Gift cards are a type of prepaid debit card that allows the recipient to purchase items from a specific retailer or merchant. When a customer purchases a gift card, they must load a certain amount of money onto the card. The customer can then use the gift card to purchase items from the retailer or merchant, up to the amount that was loaded onto the card. Once the balance on the card is depleted, the card is no longer valid.

Do retail stores make money on gift cards?

Yes, retail stores can make money on gift cards. Many stores allow customers to purchase gift cards at a discounted rate, which can generate profits for the store. Loyal customers will purchase gift cards as gifts, convert more people into customers for your store.

Is there a gift card that can be used anywhere?

Yes, there are several types of gift cards that can be used anywhere, including Visa gift cards, Mastercard gift cards, American Express gift cards, and Discover gift cards.