| What happens to gift cards when a company files for | | | | spread like viruses, the last thing a company needs is |
| bankruptcy? The recent bankruptcies of Linens 'n | | | | for an email to be circulating about the horrible |
| Things, The Sharper Image, and Bombay Company | | | | experience gift card holders went through with the |
| have brought the issue of gift card redemption during | | | | company. |
| bankruptcy to the forefront. With the economic | | | | Minimize Competitor Actions: When a company |
| situation expected to worsen in 2008, more retailers | | | | suspends the redemption of gift cards during |
| are likely to file for bankruptcy, and as expected, | | | | bankruptcy, it opens the door for the competition to |
| consumers with gift cards will be affected. | | | | steal its customers. A good example was seen during |
| When you buy a gift card, you become an unsecured | | | | the recent bankruptcy of The Sharper Image. At the |
| creditor to the gift card issuer until you redeem the full | | | | onset of the bankruptcy, the company announced the |
| value of your gift card (unless it expires or is eaten-up | | | | suspension of gift card redemption. As expected, |
| by fees). If the gift card issuer files for Chapter 11 | | | | affected customers reacted negatively to the decision. |
| bankruptcy protection, federal law allows the company | | | | Brookstone and ThePurePro.com, both competitors to |
| to stop honoring gift cards. However, the company | | | | the Sharper Image saw an opportunity to gain more |
| may petition the bankruptcy court to allow the | | | | customers so they announced special discounts |
| continued redemption of gift cards. | | | | targeted at The Sharper Image gift card holders. It |
| A company planning to continue in business should | | | | appears The Sharper Image began to feel the impact |
| make every effort to honor gift cards while under | | | | of these actions and it later reversed its decision and |
| bankruptcy protection. Refusing to accept gift cards is | | | | began accepting gift cards from customers. |
| a bad move and could ultimately work against the | | | | Project Business as Usual Image: When a company |
| company since it will only infuriate the very customers | | | | files for Chapter 11 bankruptcy, it typically proposes a |
| it really needs during bankruptcy reorganization. Below | | | | plan of reorganization to keep its business alive. This |
| are four (4) reasons why continuing the redemption of | | | | plan may include selling, closing, or consolidating some |
| gift cards under bankruptcy reorganization is a smart | | | | store locations. For the stores locations that remain |
| move for a retailer: | | | | open, it is important to project an image of business as |
| Maintain Customer Loyalty: If the company plans to | | | | usual. |
| stay in business, refusing to accept gift cards will only | | | | Refusing to accept gift cards would be the wrong |
| anger customers, who will feel cheated. This will not | | | | signal to send since it reminds customers that the |
| only turn away current customers but also drive | | | | company is in serious trouble. Customers may begin to |
| potential customers to the competition. This is because | | | | wonder if service will begin to deteriorate, especially |
| some aggrieved customers will share their horrible | | | | support for big ticket items. Continuing the redemption |
| experiences with family members, friends, and | | | | of gift cards is a good way to assure customers that |
| coworkers who will likely stay away from the | | | | their shopping experience with the company will not be |
| company since they would not like to go through a | | | | impacted negatively by the bankruptcy. |
| similar experience. In today's world where emails | | | | |