Ringing Up a New Way to Give

Growth of on-line shopping malls raises cash, questions for charities

Holiday shoppers who buy their gifts on line will find it hard to be a Scrooge: Offers

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to benefit charities abound as retailers try to entice shoppers to their Web sites by offering special charity deals at the virtual check-out line.

The concept of using the Internet for shopping and helping a good cause at the same time has even won a White House endorsement: In a holiday message, President Clinton urged people who were buying their presents on line (as he said he plans to do) to also “give something back to our communities.”

Trying to take advantage of the interest in combining shopping and altruism, “charity shopping malls” have been proliferating almost as fast as you can click your mouse. With names like 4Charity, Charitableway, CharityMall, GreaterGood, iGive, Shop2Give, and ShopForChange, the sites typically gather together numerous on-line retailers and then channel a portion of the amount spent on sweaters, compact disks, books, and other purchases to charities.

Usually, consumers get to choose the charities that will benefit from their purchases. In some cases, the Web sites offer shoppers a select group of organizations with which they have a formal arrangement. In other cases, shoppers can designate any charity, or even any non-profit group, to receive money; those organizations may be unaware they are involved with a site until they find a check in the mail.

Most of the charity shopping sites are run as for-profit businesses, and several offer other services for donors, such as information on charities and mechanisms for giving directly on line. Many sites make their money by keeping some of the fees retailers pay for sending customers their way, rather than passing the entire amount on to charities. But others are hoping to turn a profit through other means, such as offering Web-consulting services to charities.

Few charities have made any significant dollars yet from the shopping sites, but many are hopeful that they will get benefits that go beyond the revenue raised from retailers such as 1-800-Flowers.com, Amazon.com, Avon, Cooking.com, JCrew, and the Sharper Image — which typically give 5 per cent of the amount purchased on line to charities. Some of the sites provide to charities the e-mail addresses and other information collected from customers so that the organizations can send them information and eventually solicit them for donations.

The charity on-line malls are all hoping to grab a slice of the $4-billion that Americans are expected to spend on line this holiday season, up from $1.5-billion in 1998. Even more important, they want to be in a position to get as big a share as possible of the $185-billion that Forrester Research, an Internet analyst, predicts shoppers will be spending on line five years from now.

While many non-profit groups are encouraged by the potential of on-line shopping arrangements, other charities have so far steered clear of any formal links with the shopping sites. Some worry that commercial promotions could actually be harmful. They fear that many consumers will think that they don’t have to give anything to charity beyond the sum they directed through an on-line purchase — usually amounting to nothing more than a couple of dollars.

Another concern: that the companies running the sites will get most of the financial benefits while non-profit groups earn small amounts of money for the use of their names.

Most of all, non-profit leaders are confused about how best to evaluate this new Internet activity. They are especially concerned about endorsing ventures that might prove to be short-lived because of poor finances, technical glitches, or even corruption.

“We have to make sure that we’re not developing relationships that in the long run are going to be detrimental to our organization,” says Joyce Richards, national director of advancement for the Girl Scouts of the U.S.A. “We’re going to take it very slowly, step by step. The Girl Scouts is too big an organization with too good a reputation to get involved in something without a great deal of thought.”

Ms. Richards is by no means alone in her concerns. Nick Allen, president of Donordigital.com, a consulting company in Berkeley, Cal., says: “My clients are always asking me, ‘Which of these shopping malls should I sign up for? Are they legitimate?’ And it’s hard. They’re all so new. It’s not like you can look them up in Consumer Reports.”

Beyond the potential problems, a question for the future of charity-related shopping sites is whether retailers will continue to pay a percentage of their on-line sales to the malls for sending customers their way.

Today, retailers are spending huge sums on advertising and other marketing promotions, including the financial arrangements with on-line malls, to get customers into the habit of shopping on line. But once Internet shopping becomes more established, retailers may decide to scale back or eliminate the payments to on-line malls, including to sites set up specifically to help non-profit causes.

G. Randolph Dirth, chief executive officer of GreaterGood, a Seattle company that runs a site with links to more than 70 retailers, says he doesn’t think that will happen because he believes on-line malls will prove even more cost-effective than print, broadcast, and Internet advertisements in steering shoppers toward retailers. He says that the people who use sites like his are those that retailers find most desirable: well-educated, fairly affluent — and they have an interest in shopping.

“We really provide retailers with a wonderfully pre-qualified customer,” says Mr. Dirth, a former top marketing official at Williams-Sonoma.

The growth in the number of on-line shopping malls has caused a lot of competition among the sites, and many are now offering special promotions to lure consumers — and charities — to use them.

For example, iGive, an Evanston, Ill., company that has links to more than 130 retailers, has been running a special holiday promotion that pays charities $10 for each new person who registers with the site and makes a purchase. The site hopes that if it can attract more registered shoppers, it will be better able to make the case that other companies and charities should join the site.

The promotion has been popular, accounting for most of the $120,000 that iGive paid to charities in October and November alone.

GreaterGood has raised about $20-million from venture capitalists to help it build up its data base of shoppers, buy advertisements to attract shoppers and charities, and pay for building “customized shopping villages” on non-profit organizations’ own Web sites, at no charge to the charity.

Sites without the benefits of big budgets are distinguishing themselves in other ways. 4Charity, a Palo Alto, Cal., company whose site has links to more than 140 retailers, hopes to make its mark by passing on 100 per cent of the commissions it gets from stores to non-profit groups. Until recently, 4Charity had been run completely by volunteers, but the company now plans to bring in operating revenue by selling on-line advertisements and consulting services to charities.

While the charity malls are promoting themselves vigorously on line and through other publicity techniques, they are far less forthcoming when asked to reveal details about their finances, such as total sales or profits, saying that such disclosures could put them at a competitive disadvantage. The sites are not legally obligated to disclose any information, since they are operated as privately held businesses.

Most of the shopping-mall companies, including 4Charity and Shop2Give, even decline to say how many dollars they have so far forwarded to non-profit groups. GreaterGood will only say that it has raised “tens of thousands” of dollars for charities.

Dan Moore, charities registrar in the New Mexico Attorney General’s Office, says that such a reluctance to publicly disclose the amount of money passed on to charities can be troubling. “To the extent that sites don’t want to address this issue,” he says, “it raises more questions than it answers.”

Mr. Moore, who was speaking in his role as vice-president of the National Association of State Charity Officials, says that the shopping malls that succeed will be the ones that inspire the highest confidence among shoppers. “To do that, sites will need to show that they actually work, that they meet expectations, and that the portion of the money people spend through the site that is promised to charity actually goes to the charity,” he says.

One site that stands out for its financial disclosures is run by iGive, which began operations November 1997. The company says it has raised $525,000 for 6,400 non-profit groups. The company posts on its Web site a list of all payments it has made to charities in the past 45 days, complete with specific dollar amounts and check numbers.

Robert N. Grosshandler, chief executive officer of iGive, says computer technology has made it easier than ever to provide “the highest level of accountability possible.” He believes that charities, donors, and shoppers should demand very specific reporting from the shopping sites. “It’s so easy to hype stuff on the Internet,” he says, “so you need to be able to look at deeds, not words.”

Negative publicity about charity shopping malls is one reason a growing number of sites are paying increased attention to disclosure issues. A March article in The New York Times criticized some sites for glitches or policies that resulted in some charities not getting money quickly — or at all.

Since then, most charity malls have come up with specific methods for dealing with that problem and clearly spell out on their sites what their payment policies are. Most send out checks either monthly or quarterly, and several have minimum requirements for how much a charity must earn before receiving a check. Some have come up with a way to send out payments no matter how small. GreaterGood, for example, says it has sent a check paying as little as 64 cents.

Technological advances have also made a big difference. Ami Kassar, founder and chief executive officer of Shop2Give, a Los Angeles company with ties to more than 80 retailers, says that many shopping sites initially required “a lot of blind faith” on the part of shoppers and charities that money was reaching its intended destination. But new reporting systems, such as the one Shop2Give just added, let shoppers and non-profit groups obtain detailed reports of all transactions. Shop2Give now permits users to review all retail sales within five days of an on-line purchase, and it has dropped relationships with stores that could not agree to provide such information that quickly.

The non-profit organizations that have benefited from on-line shopping sites are an eclectic mix of electronically cutting-edge national groups and local causes, as well as charities that tend to appeal to young people and computer users.

Mr. Dirth of GreaterGood says the charities that have been most successful are those that have obtained the e-mail addresses of their members or other supporters. That information allows the charities to quickly contact those people and tell them how to take advantage of specials on the shopping sites, such as incentives for first-time shoppers. “So some groups that are relatively small or local are able to have really great results,” he says.

Another reason groups of all sizes have decided to get involved in shopping sites: The up-front costs are negligible.

The Humane Society of the United States, for instance, is listed as a beneficiary on the shopping site maintained by GreaterGood. The society paid nothing for that, nor did it have to pay for GreaterGood to design a shopping network that is part of the Humane Society’s own Internet site. GreaterGood even agreed to screen out retailers who don’t fit with the mission of the society, such as Omaha Steaks.

So far, the $15,000 that GreaterGood has produced for the humane society is small (the charity took in more than $43-million through more conventional fund-raising techniques last year). But Wayne Pacelle, a senior vice-president for the group, says its relationship with GreaterGood is “a very labor-free form of income, and it’s not competitive with the fund raising we engage in to sustain our programs.” He adds: “We look at it as: People are going to buy these products anyway. Why not let them direct a small portion of the purchase prices to us?”

Many charity officials say the rapid pace of the Internet necessitates that groups move quickly to participate in new ventures if they want to tap into what could become a significant source of revenue.

The World Wildlife Fund signed up with GreaterGood earlier this year in hopes of augmenting its on-line fund raising. “In the off-line world, it took about 10 to 15 years for cause-related marketing to really benefit charities,” says Kathleen Nixon, director of marketing alliances for the World Wildlife Fund. “With shopping malls, as with anything in the on-line world, it’s taking a lot shorter time.”

Fund raisers say the ultimate benefit from on-line shopping sites may be their potential for identifying future donors, rather than the money they generate directly from consumer purchases.

Charitableway.com and some other sites pass on to charities the names and contact information of the shoppers who selected them, unless those people request anonymity. “If charities don’t know who’s picking them, then the value of the few pennies or dollars that they get from shopping rebates is completely lost,” says Pete Mountanos, chief executive officer of Charitableway, which started a shopping mall site last month. “I tell non-profit groups, ‘Watch out for companies that are stealing your donors.’”

Another site, iGive.com, does not share shopper information with charities because it says it wants to protect the privacy of people who use the site. But it has agreed to forward electronic newsletters and other messages from charities to the shoppers who named them as beneficiaries.

The Brian Littrell Healthy Heart Club for Kids, in Lexington, Ky., recently asked iGive to send out an e-mail letter to the 5,000 shoppers who selected the charity as their cause of choice. Those shoppers have generated $14,000 through iGive.com for the program, which is named for a Backstreet Boys band member who underwent heart surgery as a child.

Already several recipients of the electronic newsletter have gotten in touch with the club to say that they would like information on how to hold a local fund-raising event.

C. Edward Wardel, executive director of the Saint Joseph Hospital Foundation, which oversees the club, says he is hopeful shoppers will be persuaded to support charitable causes with cash contributions over the long haul. But he is also aware of the challenge that lies ahead, noting that fund raisers have had a hard time hanging on to donors who receive totebags, T-shirts, or other such “premiums” offered as incentives to give.

“Will these on-line donors behave like people who received a premium?” he asks. “The only way to find out is through research over time.”

Regardless of the outcome, Mr. Wardel says the on-line shopping sites present fund raisers with a special opportunity to reach young people, such as teen-aged fans of the Backstreet Boys. “The positive piece of it is that nobody gets 13-year-old donors by mail,” he says. “People don’t become donors by most other means until they are at least twice, if not thrice, that age. So, one way or the other, on-line shopping is inculcating in a very young age group the value of philanthropy.”

He adds: “Now the burden is on us fund raisers to turn it from a self-interested brand of philanthropy into a disinterested brand of philanthropy.”

Amanda Marshall contributed to this article.