Academic

Gift Cards Revisited

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Yesterday a number of the local news stations extensively covered the story of the Sharper Image bankruptcy, with particular emphasis on the fact that Sharper Image is no longer honoring gift cards as a result of its bankruptcy. The story not only appears to reflect a sign of toughening economic times, but also re-affirms some of the problems associated with gift cards.

To be sure, it is nothing new that when a company declares bankruptcy, many are left holding claims that have no hope of being satisfied. Now gift cardholders are a part of that ?many.? Interestingly, rival store Brookstone is offering a 25% discount for anyone who makes an in-store purchase and turns in a Sharper Image gift card?regardless of the face value of the card. The discount may be more than some creditors ultimately receive.

Yet the Sharper Image story reflects an additional reason why gifts cards may not be the ?perfect gift.? Indeed, we have blogged before about some of the problems associated with gift cards, including the fact that they often go unused or otherwise expire quickly. While legislators have sought to respond to these kinds of problems, it seems difficult for them to respond to the bankruptcy problem, even though it appears to reflect a significant amount of money left on the table. And as some news stories suggested, it is a problem that may be exacerbated during an economic downturn. Thus, one research firm predicts that shoppers could lose some $75 million this year as a result of gift cards that are not honored because of store closings. Indeed, given the booming business that gift cards represent for some companies, many news stories speculated about other companies that could find themselves in the same predicament as Sharper Image. For example, one station speculated about Barnes and Noble, which sells lots of gift cards and yet recently forecasted weaker than expected earnings for 2008. To be sure, Barnes and Nobles does not appear to be in danger of declaring bankruptcy, but it is something to keep in mind with respect to purchasing gift cards.

In the end, perhaps you need to research the financial solvency of a company before purchasing a gift card. At the very least, the Sharper Image story underscores the importance of using gift cards sooner rather than later. And since I have a number of Barnes and Nobles gift cards tucked away in various envelopes, I will be making a trip to the bookstore this weekend.

Full post as published by Conglomerate on March 04, 2008 (boomark / email).