The Issue: When retailers file for bankruptcy, gift-card and other account cardholders could be left high and dry.

What I Think:  Of course, we wish only the best for small businesses of all types. But while understandably not their first concern if going out of business is at hand, retailers should be aware that gift-card accounts without FDIC insurance could be in trouble. 

The potential risk? Last Christmas season, shoppers dropped some $26 billion on gift cards, up from S18 billion in 2005 and $24 billion in 2006 according to the National Retail Association.

This holiday season, consumers need to be wary of retailers that can’t or won’t post announcements assuring them that purchases are insured at face value, thus fully returnable.  When retailer, Sharper Image, filed for bankruptcy earlier this year, for example, an estimated $20 million in unsecured gift cards were at risk. Twice that, if the now-closed chain’s merchandise certificates and promotional cards are included.

After at first refusing to honor its credit cards, Sharper Image eventually offered to accept the gift cards of customers who would “agree to spend twice the face amount on a single purchase.” Though just how many buyers actually did that is unknown, that deal was not considered “terribly good,” according to Consumer Reports!

In September, however, a coalition of consumer groups worried about how little protection consumers have, petitioned the Federal Trade Commission to require retailers to put gift-card revenues in trust as a way of preventing buyers from being hung out to dry by merchants staying in business while suing for bankruptcy. If a bankrupt retailer’s stores close, gift-card holders would simply be out of luck. The FTC has not yet responded to that petition.

Even if activated, however, the consumer-group proposal might not produce the intended effect on skeptical buyers. Without federal regulatory intervention, consumers could still lose big money on gift cards if bankruptcy court judges refuse to allow merchants to continue accepting gift cards after filing for bankruptcy. If that happens, the only recourse for a failed retail store’s gift-card holders would be to file their claims along with the merchant’s other creditors. 

What to Do? Instead of putting that or a similar plan to the test this season, consumers who don’t know what gifts to buy are urged to “Just give cash.” It’s always good! 

If you are a retailer, we want to hear from you! What does this mean to you and your business? To your competitors? To your customers? Your comments are welcome. Have you registered?

Bill Willard has over 30-years experience providing high-impact written communications to small-business owners and independent professionals. Through interactive, Web-based “Do-While-Learning™” programs, e-Newsletters and straight-talking articles, Bill helps clients get the job done: profitably improving performance, helping grow their businesses, skipping expensive mistakes, making the journey to success faster, smoother, easier. And fun! A Phi Beta Kappa and former managing editor, he and his wife, Sue, live in Clearwater, FL.

Contact him at billw15@tampabay.rr.com for additional information or to sign up for his Daily Grins email feature. Or visit his Website: http://www.writergazette.com/WillardAssociates.shtml

Popularity: 5% [?]