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Gift Card Warnings! Buying Gift Cards This Holiday Season? You May Want to Seriously Reconsider


Gift cards are always one of the most popular gifts come the holidays. They're quick to buy, come in all different values and they're always just the right size. In fact, in 2007 gift cards were the most desired gift by women, according to Consumer Reports.

holiday gift cards

When Bombay closed its doors earlier this year, gift card holders were given just $.025 on the dollar.

This year, gift card sales are expected to fall 9 percent because of the slowing economy, yet Americans are still expected to spend nearly $60 billion on gift cards linked to specific restaurants or retailers, according to a report by research and advisory firm the TowerGroup.

In fact, over half of consumers are planning to purchase at least one gift card this season, a report by the National Research Network and The Hartman Group found.

Gift cards "are the most popular category of present," says Anthony L. Liuzzo, professor of business and economics at Wilkes University in a article. "[They] continue to increase in popularity relative to all sales."

However, a major problem with gift cards, which has already burned countless consumers, is what happens if the store you purchased it from goes out of business?

Are you simply out of luck?

Sometimes, yes.

What You Must Know Before Buying a Gift Card

In many instances retailers promise to honor gift cards even after they file for bankruptcy or announce a store closing. However that doesn't always happen.

When Sharper Image closed its stores earlier this year, gift card holders got just $.050 on the dollar. At Bombay, another company that closed its doors this year, consumers got just $.025 on the dollar.

Understandably, Americans are more concerned about buying gift cards this year specifically because of fears of retailer collapse or bankruptcy, according to TowerGroup.

"The sensitivity heightened in 2008 following the bankruptcies of ... Linens 'n Things, and Sharper Image, where more than $100 million in gift card value became compromised in the wake of retailer filings," Brian Riley, a research director at TowerGroup, said on

Gift card holders could lose from $75 million to $100 million from store and restaurant closings in 2008, analysts say.

"2008 will be the biggest number of store closings that we've seen in the retail industry ever," Kevin Taylor with Oppenheimer told MyFox Kansas City.

"Where people last year were hording their gift cards for weeks on end, there seems to be a hint of a trend people getting a gift card and spending it right away," he said.

Of course, bankruptcy is far from the only reason why people don't get their value out of gift cards. Expiration dates, loss, theft or simply not using them often leave gift cards null and void.

According to a Consumer Reports survey, of the 62 percent of respondents who received gift cards in 2007, 25 percent had yet to use them (and more than half of this group had two or more gift cards they had yet to spend).

What Are Your Rights as a Consumer?

You should know that, according to, federal law allows companies to stop honoring gift cards when they file for Chapter 11 bankruptcy protection. This doesn't mean they will, as some stores opt to continue to honor them or simply suspend redemption for a period of time.

And, simply because a company files for bankruptcy does not mean that it will be closing its doors. Many companies go on to be successful after emerging from Chapter 11.

Still, the risk is there.

What can you do if you're left with a gift card from a bankrupt store? posted a portion of a letter to the Federal Trade Commission from Consumers Union, along with the Public Interest Research Group, the Consumer Federation of America and the National Consumer Law Center, that helps explain:

holiday gift cards

Experts agree: if you receive a gift card this holiday season, your best bet is to use it right away.

"Currently, unused gift card funds are treated as a debt," the letter states. "The retailer may or may not request the court to allow it to continue to accept its gift cards. The consumer is left without the ability to use the card if the retailer does not make this request or if the court denies the retailers' request. The consumer may be left with one option, which is the cumbersome task of filing a claim as an unsecured creditor in the bankruptcy proceeding to obtain the value on their gift card."

For most people, of course, this would be far too much trouble to go through for a $25 gift card, leaving them completely out of luck.

Which Stores' Gift Cards are Most Risky?

If a store is filing for bankruptcy or otherwise in financial trouble, you should use your gift card as soon as possible, regardless of whether they say they're still accepting the cards. The following stores fit this criteria and, according to, if you have a gift card from one of them you should use it NOW:

  • Circuit City: They've filed for bankruptcy and are closing 566 stores.

  • Mervyn's: This California retailer will be closing its remaining 149 stores after the holidays.

  • Linens N' Things: They will be closing down each of their 371 stores by January.

  • Shoe Pavillion: They will be closing all stores, a process that began in October.

  • Tweeter: This electronics chain will be closing all of its stores.

  • Value City: They announced in October that all stores would be closing.

  • Steve & Barry's: This fashion retailer announced this November that it would be closing its stores.

  • Boscov's Department Store: This Philadelphia-based retailer filed for bankruptcy in August and began closing 10 stores.

The current status of other stores you may be concerned about, according to's Urban Legends, is as follows:

  • Ann Taylor - Has announced the closure of 117 stores.

  • Lane Bryant, Fashion Bug, and Catherine's - Nine months ago parent company Charming Shoppes Inc. announced the closing of 150 stores.

  • Eddie Bauer - Closed 31 retail and outlet stores (in line with target number set early in the year) and opened 10 during the first three quarters of 2008.

  • Cache - Announced early in the year it would close 21 stores and open 16 in 2008.

  • Talbots - Closed approximately 100 stores in 2008 but is still in business.

  • J. Jill - Owned by Talbots Inc., which wants to sell the chain but has not announced the closure of any J. Jill stores.

  • Gap Inc. - In mid-2008 revised its projected number of store closings (including Gap, Banana Republic, and Old Navy locations) upward from 85 to approximately 115 stores for the year.

  • Foot Locker - Projected closing 140 stores in 2008. As of Nov. 20, had closed 129 stores and opened 58 new ones.

  • Wickes Furniture - Filed for bankruptcy in early 2008 and already closed down all retail stores.

  • Levitz Furniture - Filed for bankruptcy in late 2007 and is still in the process of liquidating assets.

  • The Bombay Co. Filed for bankruptcy in 2007 and announced it would close all U.S. stores.

  • Zales - Last February announced the planned closure of 105 stores in 2008.

  • Whitehall Jewelers - Filed for bankruptcy in June 2008 and is closing all stores.

  • Piercing Pagoda - Owned by Zales. Some, but not all, Piercing Pagoda locations were among the 105 planned closures announced by Zales in Feb. 2008.

  • Disney - Announced in May 2008 it would close 98 stores.

  • Home Depot - Announced in May 2008 it would close 15 stores nationwide.

  • Macy's - Closed 11 stores in 2008.

  • Movie Gallery - AKA Hollywood Video, filed for bankruptcy in 2007 and closed hundreds of stores but remains in business.

  • Pacific Sunwear - In Jan. 2008 announced the closure of 154 "demo" stores nationwide.

  • Pep Boys - Closed 31 locations in 2008.

  • Sprint Nextel - In Jan. 2008 announced it would close 125 stores.

  • JC Penney - No recent announcements of planned store closures.

  • Ethan Allen - In Jan. 2008 announced plans to consolidate 12 retail design and service centers.

  • Wilson Leather - Already closed 160 of its stores and is converting the remainder to sell women's accessories.

  • Sharper Image - Filed for bankruptcy in early 2008 and announced plans to close all 184 stores.

  • KB Toys - Last year closed 156 stores. No closures announced for this year.

  • Lowe's - Has scaled back planned store openings but announced no plans to close locations.

  • Dillard's - Closed three stores in 2008. New CEO says the company will continue closing underperforming stores.

Even if you have a gift card from a store not on this list, experts agree that the best thing to do with any gift card you receive is spend it ... ASAP.

Recommended Reading

The 10 Worst Gift Ideas to Keep in Mind This Holiday Season

IF You Buy Gift Cards, Beware of This Fraud

Sources November 21, 2008 November 21, 2008

MyFox Kansas City November 18, 2008 November 20, 2008 October 29, 2008 Urban Legends

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