With Retailer Gift Cards, Think: Use ‘Em or Lose ‘Em

Gift cards have become the go-to gift for millions of people. They seem like the perfect present because they’re so easy. You don’t have to put a modicum of thought into the gift, and generally, a gift card is well received. Many people are happy to get them. Unless, of course, they get stuck holding cards from retailers or restaurants who file for bankruptcy — either full dissolution or reorganization — before they get a chance to redeem that gift card.

With worsening economic conditions, consumers should think twice about retailer-issued gift cards. Store-issued cards are not as good a deal as you’d think because of the danger of bankruptcy and/or some other court-approved reorganization.

Never forget this: Gift cards are not the same as cash. When you buy a gift card, you are purchasing store credit at that retailer. You may know something about store credit if you ever tried to return something only to have your refund denied for some technicality. Instead, the clerk offers you store credit in the same amount as a refund should have been.

That’s exactly what a gift card is — store credit that can be used only at the store identified on that card.

Retailer bankruptcy filings over the past couple of years have left holders of millions of dollars in gift cards with no way to spend that store credit. Some bankrupt retailers have in the past obtained court approval to continue honoring their cards, but that is extremely rare.

When Sharper Image filed for bankruptcy reorganization in 2008, immediately the courts decided the retailer would no longer accept its cards. An estimated $20 million in gift cards and gift certificates went unredeemed. All these years later, you can still find angry messages in online forums from frustrated people who say they were ripped off and beat up by Sharper Image.

Always keep in mind that if the retailers or restaurants for which you’re hanging on to gift cards files for bankruptcy — which we usually hear about after the fact, not in advance — you may have no way to spend them. Or you may have a short window to make a move. Consider these five ways to use a soon-to-be-bankrupt gift card:

NO. 1: BUY SOMETHING. Sure, it may not be enough to buy what you would really enjoy, or it’s a store you are not that fond of. That’s the way it is. Chalk it up to the fact that you got a gift you’re not that crazy about. If the card is for a restaurant, go this weekend to enjoy your gift meal or side dish, as the case may be.

NO. 2: BUY A GIFT. Use your gift card to start your Christmas shopping early or pre-buy gifts for graduation, weddings, birthdays and other gift-giving occasions on the horizon.

NO. 3: BUY ITEMS TO DONATE. Use your gift card to buy essential items for your office, church or school. Every organization requires items like hand sanitizers, cleaning supplies, serving accessories and much more.

NO. 4: BUY THINGS TO SELL. If the courts don’t approve a store’s petition to keep accepting gift cards, liquidation sales will commence. Gift cards may become invalid sooner than anticipated. Instead of using the gift card for personal purchases, look for items you can sell online or at a garage sale.

NO. 5: LOOK FOR OFFERS FROM COMPETITORS. After Sharper Image filed for bankruptcy and stopped accepting gift cards, Brookstone, one of its competitors, came up with a generous offer for consumers. They gave a 25% discount on any purchase with any Sharper Image gift card. Brookstone had no way of verifying the remaining balance on the Sharper Image cards; the actual dollar value of the gift cards did not affect the discount provided. Something similar happened when Toys “R” Us went out of business. This is not the best idea, perhaps, but it just might be an option should you end up with a useless piece of plastic.

If you’ve become a habitual gift card giver, rather than looking to gift cards as your gift of choice, move to purchasing authentic gifts for your friends and relatives. If you cannot bring yourself to break the gift card habit, at least make sure it’s for a store or restaurant that is not on the brink of ruin. Here’s an idea: Skip the gift cards altogether and give your recipients the cash. Cash is not rude, it always fits and it’s the right color, too!

When it comes to gift cards, the message is clear: It’s time for all of us to adopt a use-it-or-lose-it attitude.