Worry over gift cards from bankrupt retailers

November 15, 2008 5:28:17 PM PST
Here's another gage of just how jittery consumers are. Last year's most popular Christmas gift is now one of the most feared -- the gift card.

Consumers spend an estimated $50 to $80 billion a year on gift cards. It's become big business and the gift of choice for people like Freddie Vasquez.

"It's easy. You just find what it is that they like, go to the store, get it and you're done," said Vasquez, a San Francisco resident.

But with major retailers in trouble, those gift cards could become worthless. Under California law, bankrupt companies that are still doing business must honor gift cards. Consumers, however, have little recourse if a retailer closes their doors for good. An estimated $25 million worth of gift cards went unused by the time Sharper Image shut down.

"You're average consumer doesn't know who's in trouble. They don't know financially who's in trouble. So that's why buyers you know have to beware," said Professor Eugene Muscat, from USF's School of Business and Management.

Retail industry researchers say gift-card holders could lose over $75 million from store closures by year's end. Which in large part explains why 43 percent of consumers say they plan to give gift cards less often this year. Regardless, consumer researcher Kathleen Kusek doesn't expect retailers to give in so easily.

"I think they might add incentives to gift cards, so perhaps with getting a $100 gift card the buyer will get a discount on another purchase they're making. That there will be other value added things to encourage the gift card market because it is so profitable for retailers," said Kathleen Kusek, a consumer researcher.

Even so, many shoppers are being cautious with their holiday shopping by buying gift cards from stores they're confident will stay afloat, or by going the old-fashioned route.

"I'll probably just pick out gifts his year," said one shopper.

"I don't want to give a gift that someone can't redeem," said another shopper.

If you do receive gift cards this holiday season, retail experts say the best advice is to use them right away.


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