Lending Club Blog

Retailer Bankruptcy Speculation Hurting Gift Card Sales

We all know that perception and reality are often disconnected. For retailers, the former stands to bring customers in, or drive them away, much more so than the latter. With so many retailers going under, speculation about who will be next has added to the downward spiral. Perceptions affect more than just the consumers on which retailers rely. Their lines of credit, supply chains, and investor contributions all stand to suffer from negative press as well.

According to a USA Today report, Rumors about retailers can be very bad news for their health, gift card sales are one area where significant declines can occur amid rumors of a store’s bankruptcy. As I mentioned previously, in Another Downside of Gift Cards, gift cards may become worthless once a company goes bankrupt. The reason is that companies aren’t required to keep gift card proceeds separate until the cards are redeemed. So it’s not surprising that people wouldn’t want to purchase gift cards at stores that are seen as a bankruptcy threat.

The USA Today article mentioned quite a few retailers which often end up on published lists of companies likely to go bankrupt, even though their financials appear strong.

The takeaway seems to be that retailers would prefer that you don’t avoid buying gift cards simply because of speculation about a potential bankruptcy. Unfortunately for retailers, there are many other reasons to avoid gift cards, such as those I covered in The Gift That Keeps on Taking.

Do you have any gift cards that have become worthless either through bankruptcy of the issuing company or due to excessive fees, inactivity or otherwise?

Wednesday, June 3rd, 2009 at 10:31 am

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