Sharper Image Gift Cards Are Worthless

If you have an unspent Sharper Image gift card, it's worthless, for now anyway. It's another example of how consumers can lose out when companies declare bankruptcy or go out of business.

According to Sharper Image's website, the company filed chapter 11 on February 19, 2008, however they plan to conduct business as usual as they reorganize the company. But here is the catch, "Sharper Image is suspending the acceptance of Gift Cards, Reward Cards, Gift Certificates or Merchandise Certificates as a form of payment."

In the next statement, they relinquish any responsibility by adding it is the fault of the bankruptcy laws and not their doing that has caused this situation and (yadda, yadda) they promise that they are working on a solution.

But how can they not accept gift cards? It's all in the accounting, apparently. Gift cards are considered a loan, not cash and card holders are classed as unsecured creditors, which to bankruptcy courts is low on the list of creditors to be paid back.

How Much Could Consumers Be Out?

The number of retailers and restaurants filing chapter 11 this year is the highest since 1991 and over $75 million unredeemed gift cards are at risk of becoming nothing but a piece of plastic, according to Brian Riley, a senior analyst of the financial service company, The Tower Group.

It is not just gift card holders that are at risk of getting the short end of bankruptcy laws. Recently I had a friend that put several thousand dollars down on a new couch that she ordered from an established furniture company. After several delays and excuses as to why she hadn't received the couch, the store closed and filed for bankruptcy. Her money is now gone. Had she charged the amount on a credit card, rather than giving the store a check, she may have recouped some of her loss, depending on the credit card company and its buyer protection policies.

Another friend received an expensive camera from a small locally owned camera store as a Christmas gift from her husband. The camera store had been opened for over 30 years. He purchased the wrong camera, paid cash, and when my friend returned it, the company told her they would have to order the one she wanted. Rather than returning her money, they said they would apply it to the purchase of the new camera when it arrived in two weeks. A week later the company was closed for good and she was out several hundred dollars. Again, had he charged the camera the couple may not be out of the money.

Closed Stores Do Not Always Mean Bankruptcy

Since the beginning of January, news reports of store closures are almost a daily occurrence. However, many of the closures are due to bad locations and expired leases and not because the entire company is closing. In those cases, gift cards, gift certificates and merchandise credits should still be redeemable in other company locations.

Brookstone Comes to the Rescue - Almost

Brookstone Inc., one of Sharper Image's biggest competitors is seizing the opportunity to attract new customers by allowing Sharper Image gift card holders to redeem their cards for 25 percent off any purchase, regardless of their purchase and the amount of the card.

This type of intervention from competitors happens a lot and it does help consumers to recoup some of their losses. Making a few phone calls to competing stores or doing an Internet search may turn up other solutions than putting the gift card through the shredder.

Also, many companies recover from filing chapter 11 or are bought by other companies that honor the cards. So if you are stuck with a dead gift card, do not throw it away yet. It could be redeemable in time.

The Bottom Line

Companies who anticipated the possibility of bankruptcy, but continued to promote gift cards over the holiday season took advantage of consumer's trust, in my opinion.

C. Britt Beemer, chairman of America's Research Group, said it the best to the AP. "You will see a lot of frustration among customers. You basically stole (money) out of the customers' pocket. They will never forgive you."