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Did you know that when you buy a gift card, you’re essentially loaning money to a company? Chris H. forwarded a MSNBC story that describes how after bankruptcies, gift cards can be worthless:
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.
If you own a gift card to a bankrupt company, you’re basically a tiny creditor. And if the company goes bankrupt, the bigger creditors get their money first. You’re last in line. The article notes that retail bankruptcies are expected to reach their highest levels this year since 1991. But it also notes that consumers shouldn’t just throw away their gift cards.
The Sharper Image, for example, is attempting to re-organize. If this move is successful, the business will continue and the company may honor existing gift cards. And don’t assume that just because a company closes its doors in your town that it’s out of business for good. If you have a gift cards for a place that’s moved out of your area, check to see if you can redeem them online.
[MSNBC: After bankruptcies, gift cards can be worthless]
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March 6th, 2008 at 1:28 pm
I don’t get the hate here for gift cards.
I love the gift cards I get at Christmas because they give me the joy of splurging on myself throughout the year, getting things that make me happy and are useful. If I got cash, I’d just save it. That’s not a bad thing, of course, but without gift cards the wife and I would have fewer movie and dinner dates and pleasant trips to the bookstore.
If you keep a gift card so long that it devalues, whose fault is that? And better a gift card than the pile of junk I get from less considerate relatives. Stuff that I exchange if possible, but that’s a hassle.
March 6th, 2008 at 1:32 pm
March 6th, 2008 at 1:44 pm
I found the post to be quite objective, and didn’t think it was anti-gift-card or hateful.
Personally, I don’t like getting them. Someone gives me this thing that is useless unless I spend time surfing on a Web site or else get in my car and drive half an hour to the mall where I then have to circle the parking lot looking for a place to park. Then I have to walk around a crowded store looking for the thing that I don’t want the least. The whole thought is stressful and that makes for a bad gift. Again, just my opinion.
I know this sounds awful, but I prefer to just sell them or re-gift them.
March 6th, 2008 at 1:46 pm
I love gift cards, but im not a crazy spender so the gift cards i get are for major stores(target mainly). Not too worried about these stores rejecting my gift cards.
March 6th, 2008 at 1:52 pm
I would be so angry if I received or gave a Sharper Image gift card.
Their name is going to be “dirt” if they stiff their customers.
March 6th, 2008 at 2:13 pm
Gift cards get a bad rap. I love getting American Express gift cards because it allows me to take my fiance out to dinner and doesn’t hurt the wallet.
March 6th, 2008 at 2:19 pm
There was a gas station here in town where we live that got bought out by another company. They put signs on all the pumps that they did not honor gift cards from the previous company (which no longer existed so it wasn’t like you could just go somewhere else).
I thought it was terribly tacky. When you buy a business, since it is established, the assumption is that you get the clientele along with it. I mean, that’s the beauty of buying a business that is already established.
So to say that you aren’t going to honor gift cards issued under the previous business name is kind of like a slap in the face to your existing - probably loyal - customers.
I didn’t have a gas card there or anything, but as a result of those little signs, I make it a point to NOT buy gas there. I mean, who wants to do business with people like that?
March 6th, 2008 at 2:24 pm
Gift cards are ok for the most part unless the company has problems like Sharper Image is experiencing.
My big beef comes from rebates (legalized money laundering as I like to call them). You purchase something for full price. If you are diligent about mailing in the rebate and completing the information correctly, you can be forced to wait 2 - 8 months for your rebate. Not to mention if you do apply for a rebate and the company goes out of business before they fulfill the rebates (This happened to me with a software purchase a few years ago).
If you get something for free as a result of a rebate, (IE: free movies with the purchase of a HD DVD player) then it is not too bad, but when you are paying full price up front for items expecting a rebate check in the mail it is no fun wondering if and when you will be paid.
To make this rebate situation worse, you could be forced to use a gift card or visa debt card to redeem your rebate (Major cell phone company did this to me recently).
I don’t think rebates should be legal because companies are taking money from consumers, investing it how they want, and paying the consumer back, if and when they want.
You might ask, “do you still purchase items with rebates?” Yes, unfortunately I do, but I know the risks involved and most of the time it turns out ok. I just don’t like how shady the rebate business practices can be.
Hope to hear J.D.’s take some day on rebates.
March 6th, 2008 at 2:35 pm
If you own a gift card to a bankrupt company, you’re basically a tiny creditor. And if the company goes bankrupt, the bigger creditors get their money first. You’re last in line.
Not to mention that the stock is likely worthless. The SEC has info on corporate bankruptcy’s effects on stockholders and bondholders at: http://www.sec.gov/investor/pubs/bankrupt.htm
One quote:
Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company’s plan of reorganization will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company’s assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution.
March 6th, 2008 at 2:40 pm
Yeah, rebates tick me off, too. I know some people who are *very* meticulous about their rebates, keeping a spreadsheet of information, saving all the paperwork, etc. I’ve tried to do something similar, but I’m just not that organized.
The way I look at rebates is this: I’ll buy an item if it’s a good deal at the listed price. If it has a rebate, then fine. I’ll apply for it. But I don’t include it in my purchase decision. In this way, if the rebate processes correctly, it’s like bonus money. If I don’t look at rebates this way, it’s like money lost when I purchase something and the rebate never comes.
@JenK
Ugh. Did you see my guest post at Ramit’s site yesterday? I own stock in The Sharper Image, a foolish foolish thing that I’ll write about here at GRS when the dust has settled…
March 6th, 2008 at 2:53 pm
I don’t really like gift cards unless its for gas or groceries. There is no one store where I spend enough money to use a gift card regularily. My husband’s office gives away gift cards to the nearby mall for birthdays, holidays etc. I’m always in a pinch to spend that money - I just don’t buy stuff in stores anymore and its hard for me to spend $25 in the mall. Gift cards are great for kids and teenagers, but they just don’t cut it for adults. My parents and in-laws just cut us a check for holidays and I love it!
March 6th, 2008 at 3:20 pm
We were given a $100 gift card when we sold our house, which was a really nice gesture by our realtor.
Unfortunately, after 6 attempts to get it activated, being pushed from help person to help person, we finally gave up. Felt an awful lot like a really good unethical way to keep my realtor’s $100 bucks.
March 6th, 2008 at 3:58 pm
I love receiving gift cards, especially if it is to a place that I like, or want to try. I have gotten ones that I have not used, but that is unusual.
I had no idea that if the company filed for reorg. that the gift card would lose its value. Good information to know.
March 6th, 2008 at 4:20 pm
I appreciate gift cards when I receive them, but having an expiry date and being restricted to shopping at one place really get me.
I do wish people would feel more comfortable giving money. Perhaps it’s a cultural thing.
March 6th, 2008 at 5:24 pm
One way that gift cards are really a scam is that many people lose or never use the cards. This is free money for the company.
March 6th, 2008 at 5:57 pm
I love getting gift cards. I try to only give them to those that I know enjoy them, too. I don’t think they should get a bad rap because of a few bad experiences.
I think rebates and store cards are a rip-off, though. I used my CVS extra care card once with a CVS coupon I had “earned”, to buy CVS brand mouthwash that was on sale for half price, and it was still more expensive then buying the local grocery store brand.
Lisa
March 6th, 2008 at 6:29 pm
I’m of two minds regarding this and, as a personal finance blogger, maybe you’ll be able to dig deeper into this question that I have.
A while ago, I read this in TIME magazine:
http://www.time.com/time/magazine/article/0,9171,1713478,00.html
Scroll down a little bit to where it talks about Economy and you’ll see a point there that is essentially the opposite of what you’re saying.
Which one is the truth? And how could two such conflicting views be given equal air time if one’s true and the other’s not?
March 6th, 2008 at 10:45 pm
Hmmmm, it just seems wrong that they’d not have to honor gift cards. Perhaps there should be some legislation that the funds from a gift cards go into an escrow account until they are redeemed or until 10 years passes. That would allow some protection for the consumer.
March 7th, 2008 at 7:04 am
I also thought that it was really wrong that The Sharper Image won’t accept it’s own gift cards. That’s ridiculous!
Rebates also irritate me, though I still apply for them. I sent three rebates in from a computer I bought my parents last Christmas and I’m STILL waiting on one! Give me a break!
March 7th, 2008 at 7:17 am
I hate gift cards. I understand the intention, but at the end of the day, cash or check would be better. If you wanted to appear somewhat thoughtful but didn’t know what to get someone, why not just put something in the card along the lines of “enjoy spending this at store x or on gift x”? There are no fees associated with cash/check and they don’t become worthless after a certain amount of days. And you’re not locking someone into spending money at a specific store.
And rebates suck. I never consider them in my purchase. It is beneficial to the rebate company to honor as few as possible. Why go through all that hassle?
March 7th, 2008 at 7:25 am
My company held several contests about safety awareness in the work place, and the winners received gift cards without the paperwork. They started charging a monthly maintenance fee right away, with no waiting for activation or anything. By the time I used mine a few months later, it was almost worthless. I was furious. If I’d had the brochure, I would have known, and I’d have used it all right away. Here I was saving it for a meal out (a frugal treat) and it ended up screwing me over.
March 7th, 2008 at 8:14 am
I really don’t get the Sharper Image. That store seems to me to be about as useful as Skymall, if Skymall sold only useless products like ionizing air cleaners, motorized tie racks, and desktop mini golf sets.
My gift cards given and received are usually from corporate juggernauts that aren’t going anywhere anytime soon like Barnes & Noble and Target.
If I ever receive them from local businesses, I usually try to cash them in right away just for this very reason.
March 7th, 2008 at 9:02 am
Unless you are using gift cards yourself to try and pick up some advantages (buy 100 dollars and get a 25 dollar gift certificate), I really don’t see the concern.
If you gave it away as a gift, it may be disappointing that the person never got to use it, but how is that unique to gift cards? Plenty of gifts go unused.
And if you got one and didn’t use it, have you really lost that much? Yes, you lost the opportunity to use it and so if you wanted to replace the card you would be out the replacement cost. But as bummed as you might be, wouldn’t you just say, oh well, it was a gift. Besides, bankruptcies usually don’t happen overnight. In the grand scheme, it’s a small sliver of cards that will get caught in any sort of received-it-just-before-a-card-freeze trap. Most cards go unused because people are lazy or they don’t really want anything from the store that the card relates to.
March 7th, 2008 at 12:23 pm
@JD - No, I guess I don’t read Ramit’s site. I probably own stock in it too via my mutual funds, but that’s real diluted.
March 8th, 2008 at 8:40 am
[...] cards are worthless after stores go belly up (bastards… get in line to get your money [...]
March 8th, 2008 at 6:38 pm
Be particularly wary of gift certificates and gift cards from local retailers. Smaller stores are more likely to go out of business without warning. I saw that firsthand with a local jewelry/gift store that suddenly went out of business. The brides that had registered for gifts at the store were unable to redeem the gift certificates they received from family and friends.
March 9th, 2008 at 7:25 am
[...] Get Rich Slowly: Another Reason to be wary of Gift Cards. [...]
March 9th, 2008 at 5:51 pm
I think the MSNBC article is, frankly, incorrect. Several bankruptcy courts (including the court for the district of Delaware, where Sharper Image’s case is pending) have held that vouchers, gift certificates, and the like are deposits. As such, they are entitled to priority in the bankruptcy case–which means that while they may not be paid in full, they will be paid before other unsecured claims are paid. (See section 507(a)(6) of the Bankruptcy Code according priority status to customer deposits.)
This means that you could file a claim in the Sharper Image case and get up to $25 for your $25 gift card. This is actually a heck of a lot better than redeeming your $25 gift card for 1/10 of an Ionic Breeze, IMHO.
If you go to the Web site of Sharper Image’s claims administrator, kccllc.net/sharperimage, you can read the pleading filed with respect to gift cards. (It is the motion to continue customer programs.) Sharper Image does NOT request authority to continue to honor gift cards, but acknowledges that gift card holders may be entitled to priority treatment of their claims down the road.
Again, what this means is that gift card holders will likely receive some payment on their claims, and quite possibly 100 cents on the dollar. This is very different than all the buzz going around about gift cards becoming “worthless” in a bankruptcy.
March 9th, 2008 at 6:02 pm
[...] news is that they’re not accepting their own gift cards anymore. JD at Get Rich Slowly thinks this is a big reason to be wary of gift cards. You paid them money to buy their special money (card) but the special money no longer [...]
March 10th, 2008 at 6:45 am
@rich: Some stores are changing those rebate practices. I love Micro Center for that very reason: they do instant rebates when you buy the item. This means fewer people forgetting to cash them in, and it doesn’t take nearly as long to benefit. I got my laptop that way.
March 10th, 2008 at 6:51 am
@Lisa: CVS has some good deals with their card once in a while. We’ve gotten free items from them before. You may be able to beat some of their prices at a grocery store even after the CVS card discount but you sure can’t beat free.
I’ve found some pretty good deals with the Kroger card too. And as they will *not* honor their card prices if you don’t actually *have* the card, it helps to have it.
Some people get really paranoid about privacy issues with store cards. My philosophy is, “So give them a fake name and/or address when you sign up.” They’ll never again in their lives ask you for ID if you pay with cash and use their discount card. The only time this works against you is if they have a program where they send you coupons in postal mail. Otherwise it really doesn’t matter.
March 10th, 2008 at 8:31 pm
[...] of GetRichSlowly points out another reason to be wary of gift cards. If you have some Sharper Image gift cards - congratulations! They’re [...]
March 13th, 2008 at 3:20 pm
@Dana: I signed up for the Kroger card a couple of years ago and have yet to receive any junk mail. Their discounts with the card are great and they mentioned when I signed up that they only use the card for regional spending analytics, not individual spending tracking.
March 14th, 2008 at 10:49 am
To be honest, I never gave it much thought. Though, when you wrote, “Did you know that when you buy a gift card, you’re essentially loaning money to a company?” I was all, “…Duh?”
The only thing I use gift cards for is getting gas from Sam’s Club (they don’t accept cash). Currently, I have yet to start a job, and haven’t had a job since August ‘06 or so. All I have is $20 allowance each week.
Well, I’ve recently gotten my license, and I’m rather stubborn about paying for my own gas when I can (I’ve been selling my possessions on craigslist. Gets me cash and gets rid of the useless crap taking up space around the house). The only thing, though, is that Sam’s won’t let me pay for gas with cash. However, they will accept WalMart gift cards.
So, I go over to WalMart, I hand them the cash and tell them I want X amount put on this ugly little gift card. I take the gift card over to Sam’s Club, fill my tank with gas, and drive away happy.
To be honest, though, I hate gift cards. I’d much rather have the money as money. I can stick it in the bank then, and be able to pay to transfer a couple of domains to my favoured host, instead of having to look around at a jewlery store, trying to figure out what is the least repulsive item I can buy (gaudy seems to be “in” this decade [[shudders]]).
March 16th, 2008 at 1:25 am
It’s odd that I’m reading this now, as earlier I was checking the stock on something sold at Brookstone and noticed they were redeeming Sharper Image gift cards *and* giving you a 25% off in store if you do so:
http://brookstone.com/
Should have an image at the top/left.