Gift Card Exchange Site Leverage Halts Payroll

Gift card exchange site Leverage, which had pushed one of the more creative CRM ideas out there, has laid off its entire workforce and is hoping economic fortunes will improve next year, according to company CEO/Co-Founder Mark Edward Roberts.

"We basically stopped the payroll. Everything has gone into layoff mode," Roberts said, "until we finalize fundraising efforts. We've done layoffs, but that's just a temporary thing. We're still up and running."

Asked how the Irvine, CA-based company is still functioning without anyone on payroll, Roberts said that he's been contracting some of the work "overseas." "We just grab whoever is most able to handle it. Most of the technical stuff that we've had up is self-sustaining."

The company had 15 employees on the payroll last month, Roberts said, adding that "our employees understand that this economy has made everything tighten up."

The first report—to the best of our knowledge—of the Leverage difficulties came Friday (Dec. 12) in this nicely reported piece in Techcrunch.

Leverage launched in May 2005 and had raised $2 million in angel funding, said the Techcrunch piece, which appropriately added that, under normal circumstances, the holiday season would be a strong selling point for a site like Leverage and that layoffs would have likely waited until January.

Problems Abound

But this plummeting economy is hardly normal and gift cards are getting beaten up especially aggressively as some consumers fear that store closings will make the cards less desirable as gifts.

The gift card site wasn't shy about pushing its gift card offers however it could, including a nice shark-blood-in-the-water move when Sharper Image went bankrupt back in February.

This is an interesting time for gift cards, and it could prove to be a very favorable period for those retailers willing to change gift card policies to match the climate. The CRM potential for these card exchange efforts is huge; retailers could potentially learn who the consumer is, what that person was given (and chose to give up) and potentially even what the card is eventually used to buy.

But the card exchange site holds that data, and it may or not agree to share that info with individual retailers. In a recent example, Plastic Jungle did a joint deal with Amazon, but the deal excluded such CRM sharing.

The key problems with gift cards today are short expiration dates, reducing value in increments before those expiration dates, limiting them to only in-store purchases and the fear that the chain could go away or that the chain will merely shut down its stores.

MasterCard, American Express and Visa gift cards have good arguments against some of these factors, but they have expiration dates and some charge for adding custom images. But at least those cards are likely to be usable at the most local merchants and are not in imminent risk of being shut down.

Flexibility Means Viability possibly has the strongest overall gift card argument: it is only online, the company is in relatively strong financial health, and its gift cards have no expiration dates at all—nor is there a charge for the cards. Also, Amazon's multi-million-product inventory makes the company a pretty good choice for an "I have no idea what you'd want" kind of gift.

This week, Amazon tried to boost its program by offering to better—by a tiny amount—what a different gift card exchange site (Plastic Jungle) offers to anyone who wants to trade in some other retailer's card for an Amazon gift card. The only problem is that Amazon signed off on a news release that mislead consumers about the size of that bonus, indicating that it would pay 105 percent of the cash value of the card without defining the cash value. A consumer would likely assume that—unless something else was specified—a $100 card for a major retailer would have a value of $100. With Amazon's offer, its value is closer to about $70.

Still, Amazon's move is another example of where gift cards today can still be a very viable business—if the merchant is willing to be flexible.