LAST year, the buzzword in e-commerce was Groupon and its
myriad of competitors that offered daily online coupons to entice shoppers in a
down economy. Now, the latest fashion in retail is social gifting, where people
get together on Facebook to buy each other gifts.
Start-ups such as Sweden-based Wrapp, which launched its US
business on Monday, are getting millions of dollars in venture capital funding,
and retailers like Best Buy Co, Gap and Starbucks are scurrying to be a part of
"Brick-and-mortar retailers are all looking for new,
more efficient ways to drive sales into stores without diluting their brands...
we wanted to really see how retailers can leverage the megatrends of
smartphones and social networks," said Hjalmar Winbladh, chief executive
Wrapp is essentially an app that can run on smartphones,
tablets and computers. It allows Facebook friends to buy each other gift cards
from participating retailers either individually or by teaming up, which they
can store on their mobile devices and redeem either online or inside physical
Retailers like it because there is little marketing cost and
because customers often end up buying more once they are inside the store.
Since mid-November more than 165 000 active users have given
over 1.4 million gift cards that can be redeemed in some 50 major retail stores
across Europe, according to Wrapp.
"The thing that struck me as unique and interesting
about Wrapp is that it is kind of the intersection of three trends: gift cards,
social networks and mobile (shopping)," said Reid Hoffman, a cofounder of
LinkedIn and a partner at Silicon Valley venture capital firm Greylock
Wrapp has received $10.5m in funding from Greylock
and technology VC firm Atomico. Hoffman serves on Wrapp's board, as does Skype
co-founder and Atomico founder Niklas Zennström.
In the United States, the Swedish company has tied up with
retailers including H & M Hennes & Mauritz AB, Gap, Sephora and Fab.
E-gifting - or people buying gift cards from a retailer's
website - is still in its infancy, accounting for only $1bn of the $100bn gift
card industry last year, according to Brian Riley, senior research director at
Of that $1bn, social gifting made up only about 5% or $50m.
Technology is naturally progressing towards platforms like
social gifting, said one industry player.
"E-commerce platforms are becoming inherently more
social with the inclusion of comments, recommendations and purchase history
from each person's social graph," said Randy Glein, managing director at
venture capital firm DFJ Growth.
The retail lineup
Starbucks expects social gifting to make up about 20% of its
gifting business in the near future.
"Customers can connect from our site to their
registered Facebook account to view upcoming birthdays of Facebook friends,
send them e-gifts directly, and share the news on their Facebook wall,"
said Alexandra Wheeler, vice-president of global digital marketing at
Bridget Dolan, vice-president of interactive media at
Sephora, said conversion rates - measuring the amount of customers who actually
come to stores to redeem the vouchers - are likely to spike on holidays like
Valentine's Day, Mother's Day, and just before Christmas.
This optimism has a host of startups like CashStar,
SocialGift, Groupcard Apps and DropGifts rushing in to be the early birds in
CashStar, for example, works with more than 200 retailers
for their e-gifting businesses, and has seen sales grow 463% in the latest
quarter. Nearly 10% of CashStar's retailer network uses social gifting,
CashStar chief executive David Stone said.
"Facebook commerce is still very nascent; it is a
small, small world. Within that, social gifting is one area where we can
potentially build sales," Stone said.
While there are high hopes for the future of social gifting,
it may be appropriate to remember last year's darling, Groupon.
As a private company, Groupon was one of the fastest-growing
businesses in history and in November pulled off one of the largest Internet
IPOs of the past decade, valuing the company at well over $10bn.
But since the stock market debut, the shares have fallen
around 40% on concern about the sustainability of that growth and the company's
What's in it for them?
Retailers view social gifting as an opportunity to reach out
to their target buyers and promote their brands at almost no extra cost.
Wrapp, for instance, charges retailers nothing until a
transaction is made. It bets on the premise that most shoppers will end up
spending more than the gift card's value once they are in the store.
"As marketers, we want to be where the consumers are,
and they are all on Facebook," said Bradford Robinson, gift card manager
for Chili's Grill & Bar.
Wrapp, which works with companies like home improvement
chain Clas Ohlson and Dixons Retail-owned consumer electronics chain Elgiganten
in Europe, said users reportedly spent 5.2 times the value of the gift card
when they came to claim their gifts.
"I have no doubts that because of the FB platform,
these things can grow very quickly and get a lot of users in a short period of
time," said Sucharita Mulpuru, an analyst with Forrester Research.
But she also has a word of caution.
"It is new, and there is a lot that remains to be seen.
It could be a very powerful form of marketing (and) drive incremental value.
"But the challenge is that there is a promise and there
is a reality... you can't just introduce a platform like this and expect it to
deliver gold to everybody," she said.