THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

This plastic not so fantastic

If retailers go bankrupt, value of gift cards can follow suit

Sharper Image gift cards are currently unredeemable as the company has filed for bankruptcy protection. Sharper Image gift cards are currently unredeemable as the company has filed for bankruptcy protection. (Josh Reynolds/Associated Press)
Email|Print| Text size + By
Associated Press / March 4, 2008

NEW YORK - 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 more retailers file for bankruptcy or go out of business, more than $75 million in gift cards are at risk of becoming worthless this year.

"If I knew this was going to happen, I would have used them right away," said Jon Tapper, a public relations executive from 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."

The Sharper Image said last month it was suspending the acceptance of 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 about the risks of gift cards. Consumers spent an estimated $26.3 billion in gift cards at retailers alone 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, says, "You will see a lot of frustration among customers. You basically stole [money] out of the customers' pocket. They will never forgive you."

The number of retail bankruptcies or liquidations this year is expected to reach the highest levels since the 1991 recession.

Brian Riley, senior analyst at The TowerGroup, estimates that shoppers could lose more than $75 million just from stores and restaurant closings in 2008.

TowerGroup's figure doesn't include small shops like the local nail salon. Riley said such small operations pose the biggest risks to gift card holders.

The gift card problem provides more ammunition to consumer-advocacy groups that have lashed out against expiration dates and burdensome fees imposed if cards are not used within a certain time frame. More than 20 states have passed regulations loosening restrictions on the use of gift cards.

Even if bankrupt retailers want to honor the gift cards, they may not be able to, according to Howard Kleinberg, director of the bankruptcy practice at Meyer, Suozzi, English & Klein. Either they can't afford it or their creditors' committee or the bankruptcy court may not allow it.

more stories like this

  • Email
  • Email
  • Print
  • Print
  • Single page
  • Single page
  • Reprints
  • Reprints
  • Share
  • Share
  • Comment
  • Comment
 
  • Share on DiggShare on Digg
  • Tag with Del.icio.us Save this article
  • powered by Del.icio.us
Your Name Your e-mail address (for return address purposes) E-mail address of recipients (separate multiple addresses with commas) Name and both e-mail fields are required.
Message (optional)
Disclaimer: Boston.com does not share this information or keep it permanently, as it is for the sole purpose of sending this one time e-mail.