Who is BlackHawk? The Wizard of Gift Cards Reveals Future of Stored Value
Walk into any supermarket these days and you'll find a hulking kiosk display filled with a menagerie of gift card and prepaid card products. It's all the doing of one Blackhawk Network Holdings (NASDAQ: HAWK), the Pleasanton, Calif.-based company that has few competitors and an unabashed hunger for global dominance.
Investors love a winner, especially one with few rivals and a good plan. That may explain why the company’s stock has risen sharply ($42 as of this writing) from the $25 IPO price in 2013. Blackhawk’s industry dominance – the company sells gift cards in more than 198,000 locations across 22 countries – is not only impressive, but also provides an accurate indicator for the health of the global gift card market. Card manufacturers, processors, retail chains, digital vendors, and prepayment professionals should take notice. A closer inspection of Blackhawk’s history, operations, and future development can reveal a few secrets about where the gift card industry is heading as we race toward 2016 and beyond.
A Supermarket Monopoly
Products don’t succeed without good distribution, and not many companies can boast of a stronger distribution model than Blackhawk, which relies almost exclusively on supermarket channels. That’s no accident; the company was originally a subsidiary of Safeway, Inc. before finally spinning off on their own in 2014.
While maintaining a snug relationship with their former boss, Blackhawk quietly launched their card merchandising concept with Safeway in 2001 and within a decade had infiltrated other large grocery chains, including Kroger, Giant Eagle, and Publix. More chains are lining up; Whole Foods has a pilot program with Blackhawk in about 50 stores, according to Patrick Cronin, Blackhawk’s vice president of finance. Most of the cards are merchandised under the familiar “Gift Card Mall” concept that has become second nature to most shoppers.
Evolve and Innovate
Since launching their third-party gift card malls, the company has never rested on their laurels. They introduced prepaid Visa gift cards to their line-up in 2002, then added prepaid telecom cards in 2004. Next up was CardPool.com, a secondary market exchange for gift cards, followed by GoWallet, a digital keepsafe for all your gift cards in one convenient virtual location. Additional innovations and acquisitions have since followed, and the company is in no mood to slow down, given the huge consumer appetite for stored value.
According to the National Retail Federation (NRF), total spending for gift cards in 2015 will exceed $32 billion. The demand continues to be phenomenal. An NRF survey in 2014 revealed that the “gift” most desired by consumers is a gift card (62 percent of shoppers surveyed put this at the top of their list). This data point is made even more remarkable by the fact that gift cards have led the survey consecutively for the past eight years.
Blackhawk has not only stepped up to meet that staggering demand, but continues to research consumer needs in the areas of prepaid open-loop cards in third-party locations, egift capabilities for online and mobile channels, prepaid wireless plans and even handsets. The company is now working to capitalize on the full spectrum of prepaid products, both in-store and digitally.
Follow The Money
The Gift Card Mail concept has been an easy sell for most distribution sites. “They don’t take up much space, and they have a lot of dollar value per square foot,” said James Friedman, a stored value analyst with Susquehanna Financial Group.
One of the big questions often posed regarding multi-brand card kiosks: how does the retailer make money if the card is sold at 100% of its value to the consumer? Here's a bit of "insider" knowledge: Both the supermarket retailer and Blackhawk take a cut from the original card value. As an example, let's say a $100 Best Buy gift card is purchased at drug store chain CVS. CVS may keep around $4.50 from the original $100, and Blackhawk will take its cut of $4.50. The total $9 debit goes against Best Buy, not the consumer. As a result, Best Buy is honoring a $100 gift card that actually is worth only $91. Why is Best Buy happy with this arrangement? Because research shows that the vast majority of gift card users will spend far more than the value of the card.
BlackHawk’s stored value customers are primarily top-tier companies, including Home Depot, Lowe’s, Macy’s, Nordstrom, Walt Disney, GameStop, and others; however, they do make room for local merchants as well.
One company that is at least causing BlackHawk to look over its shoulder is InComm, a privately-held robust payment solutions company that has a third party in-store program of its own. InComm has ongoing deals with some major big box players, such as Target and Best Buy, and is looking to leverage its vast patent portfolio to beat BlackHawk to the next big prepaid innovation.
For the time being, BlackHawk remains the marketspace leader and innovator. Having nearly saturated the U.S. supermarket channel, and with operations in 22 countries (market share leader in every one), the company is gearing up for an even more ambitious international push. Company officials said they expect to launch in Poland, Indonesia, and India over the next several quarters. Even more intriguing is an ongoing negotiation for a joint venture in China that would allow BlackHawk to sell gift cards there by the end of 2015.
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