Amazon Counts on Coins to Draw Youth

Amazon.com Inc. sees gold in nickels, dimes and pennies.

Hoping to scrounge market share from America’s couch cushions, the world’s biggest online retailer plans to announce today a partnership to offer Amazon gift certificates at thousands of change-counting machines operated by Coinstar Inc.

The deal allows Coinstar customers to instantly receive an Amazon gift certificate for the amount of change they dump into a green Coinstar machine, eliminating the 8.9% service fee.

Key for Amazon is access to millions of adults and kids who can’t buy online because they don’t have a credit card.

The lucrative youth market, which by one count spends about $175 billion annually, is particularly appealing to Amazon. A Coinstar survey found that just 7% of teens have credit cards.

The deal highlights Amazon’s efforts to compete against retailers with physical stores.

Although Amazon accepts payment by check, the process can be cumbersome and time consuming. It does not accept cash, which makes it tougher for teens to spend their allowances at Amazon the way they can at the mall. Amazon’s partnership with Coinstar gives the online retailer a way to reach into teens’ pockets, but it may lack the instant gratification sought by some.

“I think this is a really good partnership, but I don’t think it’s going to fundamentally replace the store environment for people who have cash,” said Patti Freeman Evans, a retail analyst with Jupiter Research. “The store environment is immediate. You can buy it and get it today. Amazon is really fast, but it’s a different process.”

Coinstar is purchasing the gift certificates, consisting of a redemption code printed on a transaction receipt, from Amazon at a discounted rate, allowing Coinstar to offer them to customers without a service fee.

Those customers, however, could face shipping fees when they redeem their gift certificates on Amazon.

“It comes down to a value proposition of being able to take advantage of the great selection and low prices we have at Amazon by using change left on their dresser,” Amazon spokesman Craig Berman said.

Coinstar has struck similar arrangements with Starbucks Corp., Pier 1 Imports Inc., Hollywood Video and Linens ‘n’ Things Inc., in which Coinstar customers exchange their change at certain machines for gift cards they can use to purchase the retailers’ products.

“Amazon has a very intense focus on their customers,” said Nick Bartolo, an analyst with TCW Group Inc. in Los Angeles. “This is just another way to try and reach those customers ... and drive more sales to their business in a convenient fashion.”

Berman declined to speculate on how much the deal could add to Amazon’s sales.

Coinstar Vice President Peter Rowan, however, suggested that the potential was great. The United States, he said, has an estimated $10.5 billion in loose change jingling around. That’s nearly $4 billion more than Amazon’s sales last year.

“Americans are notorious coin hoarders,” Rowan said.

Average household stash: $99.

“I’m not sure it moves the needle in terms of Amazon’s income statement quarter to quarter, but it’s a creative way to add new customers in what is a fairly mature market,” said Scott Devitt, an analyst with Legg Mason.

Customers can also purchase Amazon gift certificates by feeding paper bills -- as opposed to coins -- into Coinstar machines equipped with bill accepters that are part of the program.

The service is scheduled to be available at 3,500 Coinstar machines today, including 650 machines in Southern California, which Coinstar executives estimate is home to $714.4 million in idle change.

The idea of exchanging coins for an Amazon gift certificate appealed to Glendale resident Vito D’ Erasmo, who said he used Coinstar machines last year to process $600 worth of spare change. He said he would take advantage of the new arrangement if it meant getting every penny’s worth of value for his loose coins.

“To get the Amazon gift certificate would be better” than receiving cash but paying a service fee, the 44-year-old help desk analyst said.