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...
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 pieces of plastic 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.
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“I love gift cards, but now this makes me think twice.”
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.
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 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.”
Retail bankruptcies or liquidations this year are expected to reach the highest levels since the 1991 recession.
Brian Riley, senior analyst at The Tower Group, estimates that shoppers could lose more than $75 million just from stores and restaurants closing in 2008.
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.
“Consumers need to buy gift cards with their eyes wide open,” said Jack Gillis, a spokesman for the Consumer Federation of America.
Sharper Image officials did not immediately return phone calls, but a customer-service representative told a reporter that shoppers would eventually be able to use the gift cards. She declined to say when.
Gift-card holders fall in the class of unsecured creditors, which is “low in the pecking order,” in bankruptcy proceedings, Kleinberg said. Those at the top of the list are secured creditors — with debts backed by assets such as real estate or accounts receivable.
Sharper Image’s rival Brookstone 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.”