Mar 5, 2008 7:15 pm US/Eastern
Tough Economy Doing Number On Retail Gift Cards
Recession Rendering Many Worthless; Losses In Millions
NEW YORK (CBS) ―
Retailer Sharper Image is open for business, but after filing for bankruptcy is not honoring its gift cards. As CBS 2 HD has learned, they are just the first of many retailers expected to leave customers in the cold.
Gift cards are a $40 billion a year business. Consumers love the ease and one-size-fits-all approach that makes them the perfect gift.
But recently more and more consumers are complaining about trying to redeem these cards. And now, as the number of retail bankruptcies is expected to reach the highest levels since the 1991 recession, many more consumers will find these cards are worthless.
Like Frank's Chop House in the Manhattan which shut down, putting more than $75 million in gift cards are at risk of becoming worthless pieces of plastic this year.
And it's not just big retailers like Sharper Image. Retail analyst Todd Lavieri says as more and more mom-and-pop shops like local nail salons and restaurants lose the battle of the rent, customers will be left holding the bag.
"For every million dollars that isn't redeemed, you've impacted 20, 000 customers," Lavieri said.
Shoppers have already been hit with expiration dates, dormancy fees, convenience fees and others that eat away at the balance of a gift card.
"This will make people think twice about either holding on to cards or buying a store card in the first place," Lavieri said.
How do you protect yourself? Under current bankruptcy laws retailers do not have to honor gift cards. A store though must honor a gift certificate during a "going out of business sale." And if a company is bought by another, like Fortunoff recently was, the new buyer might honor the cards, but is not legally compelled to do so.
Interestingly, Brookstone is capitalizing on Sharper Image's bad PR move. They're offering 25 percent off any purchase by just showing a gift card.
Saks Fifth Avenue's Premiere Salon in NYC is offering a similar lure to customers of the Georgette Klinger Salon, which abruptly shut down right before Christmas.
Legislation has been introduced to ban expiration dates on all gift cards in New York. Legislation already prohibits fees for the first 12 months of use.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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