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. [...]Gift card holders are at the bottom of the pecking order when a company files for bankruptcy (except for CEOs), so if you have any cards stashed away you might want to spend them. The retail environment isn't expected to improve.
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.
The number of retail bankruptcies or liquidations this year is expected to reach the highest levels since the 1991 recession. [emphasis mine]In Sharper Image's case, Brookstone is accepting their gift cards, but consumers can also sell or trade cards online at places like Cardavenue.com.
Brian Riley, senior analyst at The Tower Group, estimates that shoppers could lose more than $75 million just from stores and restaurant closings in 2008.
Tower Group's figure doesn't include mom-and-pop services like the local nail salon. Riley said such small operations, which are most vulnerable to economic downturns, pose the biggest risks to gift card holders.
If you own a gift card, the bottom line is this - get rid of it before you lose out completely. And if you plan on giving someone a gift, consider cash or a check.
(Cross-posted at BFM)