I was in Seattle for the weekend for Rotary President-Elect Training (PETS) and came across a CNN article talking about the potential of gift card losses by consumers when the issuer of the gift card goes bankrupt.
An interesting set of quotes are peppered throughout this article, along with a smart retailer as a finale…
Perspective from the accountants:
The Sharper Image announced late last month that it was suspending the acceptance of gift cards, at least temporarily. It urged shoppers to check the company Web site 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.
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. Gift cards amount to debt, and therefore holders are not necessarily going to get paid, Kleinberg said.
Perspective from the consumer advocate (who I very much agree with):
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.”
And finally, a really smart retailer reacts properly to the situation: Brookstone.
Sharper Image’s rival, Merrimack, New Hampshire-based Brookstone Inc., is capitalizing on the situation. It announced last week that it would exchange Sharper Image gift cards for 25 percent off any purchase. “We thought it would be a great way of acquiring new customers,” said Brookstone spokesman Robert Padgett. “We are here for the long haul, and thought it would be good to let them know.”
Obvious? Perhaps, but how many businesses truly have the cojones to DO that? Kudos to Brookstone for being entrepreneurial.
UPDATE March 17, 2008: More on the gift card bankruptcy story from the Wall Street Journal.