Gift Cards and the Economy

Posted by Mark Brousseau

Interesting article from Kiplinger's Personal Finance on gift cards:

Got a Gift Card? Use It or Lose It
Some bankrupt retailers honor them, but don't count on it.

By Joan Goldwasser From Kiplinger's Personal Finance magazine, September 2008

Gift cards totaling about $66 billion will be tucked into birthday, wedding and holiday cards this year. According to Brian Riley, TowerGroup's research director for bank cards, roughly one-third will be spent within 90 days and another third within six months. Some $20 billion worth will linger in drawers for months.

Delayed gratification in this case could be a mistake. Retailers are struggling in the current economy, and if a gift-card issuer files for bankruptcy, there's a good chance your card will become worthless.

Although bankrupt companies have assets, which are distributed to the firm's creditors, your status as an unsecured creditor puts you in line behind banks and other secured creditors. They will receive 100% of their investment before you get a dime. If you get anything at all, it's likely to be small, perhaps 5 cents on the dollar.

Sometimes a firm will ask a bankruptcy judge to let it honor gift cards. But don't count on that happening.

Several retailers have filed for bankruptcy recently or appear dangerously close. Gift cards from The Sharper Image are worthless; ditto for those of The Bombay Company.

Lillian Vernon, the once-popular catalog and online retailer, was sold to Current USA, which markets address labels, scrapbooking supplies and other stationery products. Current is accepting Lillian Vernon certificates at face value.

Linens 'n Things is also honoring cards for the full amount. So are Movie Gallery and Hollywood Video, just emerged from bankruptcy.

Bankruptcy rumors are swirling around Circuit City. Customers should redeem its cards pronto.