Trading Stamps

What are Trading Stamps?

Let’s start with the basic WHAT, the WHY, then the HOW of Trading Stamps…

Who: The use of ‘Trading Stamps” began in 1891;

What: Small paper stamps, meant to be given by Merchants to Customers/Prospects.

When: The first official “Trading Stamp Company”, Sperry & Hutchinson Co. (S&H), 1896

Where: The first use, Schuster’s Department Store, WI, 1891;

Why: Promotional use, Incentive to Purchase, Loyalty for Purchase(s) made.

 

How They Work

The intent was to get customers to be loyal to the merchant so that they would continue shopping there to obtain enough stamps to redeem for merchandise.

Typically, merchants would pay a third-party trading stamp company for stamps, and would then advertise that they give trading stamps with purchases.

Large retailers were usually given a discount on the stamps while smaller retailers generally had to pay the full cost of adopting the trading stamp program.

These stamps only had a minimal cash value of a few mils (thousandths of a dollar) individually, but when a customer accumulated a number of them, they could be exchanged with the trading stamp company (a third-party issuer of the stamps) for premiums, such as toys, personal items, housewares, furniture, and appliances.

An example of the value of trading stamps would be during the 1970s and 1980s where the typical rate issued by a merchant was one stamp for each 10¢ of merchandise purchased. A typical book took approximately 1200 stamps to fill or the equivalent of US $120.00 in purchases.

 

The First Loyalty Program..!

Many point to 1896 the Sperry and Hutchinson Company (S&H Green Stamps) as the first 3rd-party retail loyalty programs replacing the previous in-house programs. Retailers simply purchased the stamps from S&H, then gave them away to shoppers.

Why: Shoppers would often choose one merchant over another because they gave out more stamps per dollar spent.

Use: Merchants are free to use them as they wish; Promotional use, Incentive to Purchase, Loyalty for Purchase(s) made.

Notable Trading Stamp Programs:

S&H once boasted that they issued three times as many stamps as the U.S. Postal Service. S&H remained active for over 120 years and was finally dissolved in 2020, and the domain hijacked by an independent store franchise… FreshPoints.

 

EXECUTIVE OPINION
120 years of continuous business operation, is a testimony to the strength of the business model,. While the sheer volume of business is testimony to the marketing sense of the business method. ~ Ambassador Rodgers, A.G. Ret., CEO, CLO, Mahalo.Market

 

Trading Stamp Success ~ Proven

By 1957 it was estimated that nearly 250,000 retail outlets were issuing trading stamps, with nearly two-thirds of US households saving trading stamps.

It is estimated that 80 percent of American households collected Green Stamps during their heyday” ~ Hatala

During this time trading stamp companies had between 1,400 – 1,600 retail centers where consumers could redeem their stamps for consumer goods.

  • In the early 1960s, the S&H Green Stamps company boasted that it printed more stamps annually than the number of postage stamps printed by the US government;
    .
  • In 1968 it was reported that more than $900 million in stamps were sold in the United States;

While the general premise of the S&H Green Stamps program is still applicable today, loyalty programs have evolved considerably from the trading stamps model. And while airline frequent flyer programs still exist today, current loyalty programs are varied, significantly more complex, structurally diverse, and constantly evolving.

  • More than 75% of consumers today have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population.

Again, we see here the trading stamp market saturation of the 1960s is replaced by today’s use of loyalty cards, as noted above.

 

EXECUTIVE OPINION
This translates to a favorable consumer view with respect to discount programs generally, regardless of how elaborate the program involved may be. Put bluntly, consumers have always had a love affair with discount programs generally. If our Mahalo Dollar can capture even a fraction of the love, then our program will be an overwhelming success. ~ Ambassador Rodgers, A.G. Ret., CEO, CLO, Mahalo.Market

 

The Business Model ~ Boston College Law Review

The original concept of Trading Stamps was employed in sometimes questionable ways, restrive trade, unfair trade, etc. at times NOT inaccurate. As a business model, it is interesting to note the following points made by Boston College Law: [revised]

  1. Purchasers are Deluded: Shoppers believe that when they receive premium merchandise over the counter they are obtaining something for nothing;
    .
  2. Merchants are Deluded: The retail merchant uses the coupons because he has been led to believe that they will increase his profits, or because he has been forced to adapt them to meet the competition of a neighbor who is using the plan.
    .
  3. Faulty Scheme: No greater fallacy ever existed than to think that the coupon scheme is of permanent value to merchandising. The scheme fastens itself upon business like a drug habit.
    .
  4. Marketing Interloper: The coupon is an interloper in the field of business, posing as an advertiser while actually, it does not advertise;
    .
  5. Less Than Exciting: Giving to the purchaser a gift for which he must pay;
    .
  6. Costs, Costs, and More Costs: Not only must the merchant pay the stamp company for the cost of the stamps themselves but must also pay for merchandise not usual to his business; plus the cost of handling and redeeming that merchandise and the necessary overhead involved in that separate activity.
    .
  7. Nothing More than a Discount: In the case where a merchant issue and redeems his own stamps, either in cash or in merchandise from his general stock, it amounts to nothing more than giving a discount on purchases from him; no coercion is exercised or it is at least considerably minimized.

** For full context, please see: Trading Stamps and the Law – Boston College Law Review

Note: This review is NOT meant to glorify the model, rather it is to exploit the advantages, which we expect to gain under our plan.

With Mahalo Dollars, removed are the disadvantages and the noted abuses of the system, retaining the clearly lawful and healthy business methods used in the early trading stamp business, methods that resulted in a proven history of success.

 

EXECUTIVE OPINION
I agree with Boston College review above, as it pertains to the trading stamp companies of that period. Further, the exact model would not work in today’s marketplace for many reasons.  ~ Ambassador Rodgers, A.G. Ret., CEO, CLO, Mahalo.Market

 

The Legal History of Trading Stamps

Some merchant groups disliked trading stamps and actively worked to have them banned in their areas. Legal challenges regarding the use of trading stamps were raised in various jurisdictions around the US but were often struck down.

Legal Focus;

  • Restraint of Trade: Allegation of “restraint of trade”, a violation of the “Sherman Anti-Trust Act”. However, this law does not restrict the long-recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal; or
    (see: Lorain Journal Co. v. United States, 342 U.S. 143, 72 S. Ct. 181, 96 L. Ed. 162)
    .
  • Suppression: The “Suppression of trading stamp traffickers”, which limited consumer use. See: Merchants Green Trading Stamp Co. v. Vornado, Inc. Two Guys, which is both a retail merchant and competitor of plaintiffs, has advertised: “We will exchange your partial or filled books stamp-for-stamp for Two Guys trading stamps with a food purchase of $5.00 or more.”
    .
    Plaintiffs assert that Two Guys’ conduct was tortious since it:
    (1) misrepresented it had a right to participate in the company system;
    (2) interfered with the contracts between the company and the retailer, and the company and the customer; *294
    (3) wrongfully induced the retailer and consumer to break their contracts;
    (4) unjustly interfered with plaintiffs’ business;
    (5) engaged in unfair competition; and
    (6) misappropriated the fruits of the company system.
    .
  • Monopolization of Interstate Commerce: It is forbidden for any person to monopolize or attempt to monopolize any part of interstate commerce. The Court said, “Group boycotts, or concerted refusals by traders to deal with other traders, have long been held to be in the forbidden category.” ~ Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S. Ct. 705, 3 L. Ed. 2d 741, it is stated that Section 1 of the Sherman Anti-Trust Act makes illegal and section 2.
    .
  • Unfair Business Practises: The objection to trading stamps is that the practice of trading stamp companies of granting exclusive franchises to a limited number of retailers constitutes an unfair business practice since it deprives some retailers of an opportunity to use the trading stamps of a particular company or companies.
    .
  • Unfair Methods of Competition: The concept of “unfair methods of competition” is a flexible one “to be defined with particularity by the myriad of cases from the field of business.” It not only includes violations of the Sherman and Clayton Acts but also incipient “acts and practices which, when full-blown, would violate those Acts.”  Scientific Mfg. Co. v. Federal.
    .
  • Unfair Practices Acts: A somewhat similar problem with reference to the issuance of trading stamps has arisen under the “Unfair Practices Acts,” often called “sales-below-cost” acts. These acts generally prohibit retail sales below a certain price which represents a theoretical “cost” determined according to specific formulae.

In the Court’s opinion, trading stamps are a form of “scrip..

  • Some consumers, the Court noted, “may seek to sell [their] stamps in order to use the resulting cash to make more basic purchases (food, shoes, etc.) than redemption centers normally provide.” S&H attempted to suppress all such “trafficking.” ~ 405 U.S. 233 (1972)
    .
  • The FTC ordered S&H to stop interfering with consumers and trading stamp “traffickers” by trying to “suppress the operation of trading stamp exchanges and other ‘free and open’ redemption of stamps.” ~ 405 U.S. 233 (1972)
    .
  • Sperry & Hutchinson Co. v. Temple, C.C., 137 F. 992, the business of issuing trading stamps to be given to purchasers of small bills for cash, redeemable in articles of merchandise, etc., when honestly conducted, is not contrary to public policy;
    .
  • The exclusive franchise system is completely legal and is not unique to the trading stamp industry. As a system of distribution it is commonly used by automobile manufacturers, farm equipment manufacturers, clothing companies, and small and large appliance manufacturers, to name but a few of the many industries employing the system. The fact that the exclusive franchise system of a company might prevent a retailer from obtaining a particular stamp plan, is no reason to single out this sales promotion activity for special legislative treatment.
    .
  • Most trading stamp plans provide for giving an exclusive license for a particular area to one of each type of retailer. A stamp company will group retail merchants into classes according to the principal type of business done, such as grocery stores, drug stores, and laundries.
    .
  • The trading stamp business does not involve the sale by stamp companies of a commodity for resale by retailers; the transaction is in the nature of a sale to retail merchants of a promotional service‘ in aid of their business of selling goods and services.
    .
  • A review held that “the giving of such [trading] stamps did not constitute a price cut or unfair competition, but that such stamps merely constituted a discount for cash”; hence there was no violation of the state’s Unfair Sales Act. ~ Safeway Stores v. Oklahoma Retail Grocers Association,26 the Supreme Court of Oklahoma

The case of Rance vs. S&H Company 1965 OK

  • Each collector must have the same redemption privileges;
  • The issuer must NOT employ any discriminatory practices;
  • (3) states = Issuers are required by statute to redeem the stamps in cash;
  • (13) states = stamps are redeemed by issuer either in cash or merchandise;
  • This business strategy does not adversely affect the public interest;
  • It is legally conducting its business

Final Position Statement

Until a commercial arrangement, or a method of doing business, reaches a stage where the needs of the public are restricted to the point where the public is exposed to the evils sought to be prohibited, or such restriction is contrary to the genius of free government, such arrangement or method of doing business is not against the public policy. See Thomas v. Belcher, 184 Okl. 410, 87 P.2d 1084.

Case source

 

Legal Summary & Opinion

In the end, no known legal challenge was able to interfere with any properly operated “Trading Stamp Program”.

Further, many notable court rulings answer the important questions:

  • The various agencies of the Federal Government which have expressed themselves to date see nothing illegal or otherwise offensive in trading stamp plans as such;
    .
  • The Federal Trade Commission announced that it did not consider trading stamp plans in themselves to be an unfair method of competition under the laws it administers and concluded not to issue any complaints prohibiting the use of trading stamps;
    .
  • It was held that trading stamps are not in the nature of securities, and hence not subject to the state’s “blue sky” law, but, instead, were essentially a cash discount device. ~ Oregon case of Sperry & Hutchinson Co. v. Hudson, 29;
    .
  • The more prevalent view would seem to be that the use of trading stamps does not illegally affect the fair trade price and hence there is no violation when they are issued in connection with a fair trade sale at the permitted minimum price. As regards trading stamps and the various “Unfair Practices Acts,” including the “Motor Fuel Act” mentioned, cases to date hold that the use of such stamps does not reduce the statutorily-defined minimum price at which goods can legally be sold;

 

EXECUTIVE OPINION
Trading stamp programs are generally a lawful and healthy business practice with a history of success. ~ Ambassador Rodgers, A.G. Ret., CEO, CLO, Mahalo.Market

 

Taxation of Trading Stamps

It should be noted that sales or income taxes may apply to any Trading Stamp or Loyalty Program. This subject is more protracted and would require investigation of a particular program and jurisdiction in order to render any opinion(s).

Quote: There are many types of loyalty programs, and a ruling related to the taxation of one program may not necessarily be relevant to how the redemption of loyalty rewards pursuant to another program should be treated.

Important: What is entirely clear is that the states [and countries] differ in their approaches. Thus, there is no “one size fits all” answer for taxpayers.

The receiving consumer may find a variety of tax treatments, including some sort of gift tax or income tax. This is not likely an expense issue to the issuing company or distributing merchant.

However, since taxing authorities may find it difficult to enjoy 100% citizen reporting of gifts, it is inevitable that said authorities will;

  • Look to merchants and/or issuing companies to provide documentation that will assist taxing authorities in the collection of any applicable taxes;
    .
  • Alternatively, seek to apply a gift tax on either the merchants and/or issuing companies directly;
    .
  • The sales tax to which a trading stamp company is subject is based on the advertised value of stamps exchanged for merchandise. Ohio
    .
  • The sale of trading stamps to retail merchants is not subject to tax. ~ Pennsylvania

 

EXECUTIVE OPINION
Currently, the use of a trading stamp program does not directly subject either the merchants and/or issuing companies to any taxation. In effect, the issuing company and the merchants distributing trading stamps may enjoy a tax-free treatment. Note: caution in the design of the program, and I recommend a second opinion from a CPA, or another qualified tax professional is advised. ~ Ambassador Rodgers, A.G. Ret., CEO, CLO, Mahalo.Market

 


sources

  1. Advertised Value of Trading Stamps is the Basis for State Sales Tax
  2. Attorney General of Kansas, Opinion No. 94-54, April 18, 1994
  3. Botney v. Sperry & Hutchinson Co. (1976) 55 Cal.App.3d 49.
  4. FTC v. Motion Picture Advertising Service 344 U.S. 392, 394-395 (1953)
  5. FTC v. Sperry & Hutchinson Trading Stamp Co., 405 U.S. 233 (1972)
  6. H-E-B Grocery Company
  7. Looking Back: Stores’ rewards program used to involve ‘green stamps’
  8. Merchants Green Trading Stamp Co. v. Vornado, Inc.
  9. Parke’s Blue Point Trading Stamps
  10. Piggly Wiggly Takes Stamp Electronic
  11. Remember this? ~ Trading Stamps
  12. S&H Green Stamps – Encyclopedia Dubuque
  13. S&H Green Stamps – Sperry & Hutchinson company
  14. S&H Green Stamps – What happened to them?
  15. Sales and Use Tax Implications of Loyalty Programs
  16. Supreme Court of Virginia, Error to a Judgment 45 S.E. 327 (Va. 1903)
  17. The Trading Stamp Story
  18. Trading Stamps and the Law – Boston College Law Review
  19. Trading Stamps – A Long History
  20. Trading Stamps – Encyclopedia.com
  21. Trading Stamps – Newell A. Clapp
  22. Trading Stamps – Wikimedia
  23. Triple S Postal History
  24. Unfairness Doctrine
  25. Washington State – Opinion on Trading Stamps

Trade Commission, 124 F.2d 640, 642-644 (3d Cir. 1941).
33 1960 Trade Cases ff 69,596 (N.D. Ind. 1960), aff’d, 285 F.2d 688 (7th Cir. 1961).
34 Supra note 2.
35 U. S. Department of Agriculture, op. cit. supra note 2, at 1.
36 Id. at 28. For another study of the differences between food prices at stamp and
non-stamp stores, see HARING & YODER, 225-296.

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