$75 million in gift cards at risk of becoming worthless
You know that Sharper Image gift card you got for Christmas? Right now, it’s worthless. And other gift cards in your wallet could lose their value too.
As retailers file for bankruptcy protection or go out of business, more than $75 million in gift cards are at risk of becoming worthless pieces of plastic.
“If I knew this was going to happen, I would have used them right away,” said Jon Tapper, a public relations executive in Boston who received two Sharper Image cards as business gifts just a few weeks ago. Their total face value is $50.
“I love gift cards, but now this makes me think twice.”
Sharper Image announced late last month that it would stop accepting gift cards, at least temporarily. It urged shoppers to check the company website later this month for an update. That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash.
For many shoppers, it’s a harsh lesson. Consumers spent an estimated $26.3 billion in gift cards at retailers last holiday season, compared with $24.8 billion in 2006 and $18.48 billion in 2005, according to the National Retail Federation.
C. Britt Beemer, chairman of America’s Research Group, said “you will see a lot of frustration among customers. You basically stole [money] out of the customers’ pocket. They will never forgive you.”
Brian Riley, senior analyst at Tower Group, estimates that shoppers could lose more than $75 million just from stores and restaurant closings in 2008.
Tower Group’s figure doesn’t include mom-and-pop services such as the local nail salon. Riley said such small operations, which are most vulnerable to economic downturns, pose the biggest risks to gift card holders.
Sharper Image’s rival, Merrimack, N.H.-based Brookstone Inc., is capitalizing on the situation. It announced last week that it would exchange Sharper Image gift cards for 25% off any purchase, no matter the amount of the gift card or the cost of the item.
“We thought it would be a great way of acquiring new customers,” Brookstone spokesman Robert Padgett said. “We are here for the long haul, and thought it would be good to let them know.”
Ricki Gard, a manager of Saks Fifth Avenue’s Premier salon in New York, said it had been able to attract new clients from high-end spa Georgette Klinger, which abruptly closed its locations around the country a week before Christmas, leaving gift card holders in a lurch.
The Saks salon, leased to an outside firm, has been offering 30% discounts on first-time services for Georgette Klinger gift card holders, though that was little comfort to many who had thousands of dollars stored on their prepaid cards.
