UPDATE: This post is updated with news about retail changes that impact gift cards. Last updated 8/30/2024.
In the rapidly changing retail landscape, consumers need to know the status of their gift cards, especially when stores undergo financial restructuring, bankruptcy, or closure. This guide provides a list of impacted retailers plus up-to-date information on managing your gift cards during these transitions.
A Gift Card Promise That Sometimes Breaks
A gift card is a prepaid promise from a merchant to provide goods or services at a future date when the cardholder surrenders the card. This arrangement, however, depends heavily on the issuing store or restaurant's ability to stay operational.
While not common, merchants sometimes fail to uphold their end of the bargain due to financial difficulties or significant business changes, leaving consumers with unusable gift cards. But this risk diminishes if consumers habitually use their gift cards soon after receiving them—a practice that, ironically, can also bolster the retailer's financial health. Or, more importantly, it would at least protect consumers.
Let me explain.
From my extensive experience handling gift card inquiries, I know many people are surprised and frustrated when they find their gift cards don't work following a store's closure. Yet, as I review their stories, I often discover that the defunct gift cards have been idle for months, if not years.
For instance, a reporter once called me about a woman who'd lost significant value on her gift cards when a local restaurant closed. The woman was infuriated that friends had pooled money to help her with meals during a time of need, and now "their money" would go to waste. Interestingly, she'd held onto those gift cards for over three years. It's puzzling that the consumer lamented the restaurant's closure yet hadn't used the gift cards when the business was open.
Thus, while retailers must manage their operations transparently and fulfill their commitments, consumers should also aim to use their gift cards promptly to avoid potential losses. Collaborative efforts from both sides can help ensure that gift cards remain a reliable and enjoyable experience.
Situations That Affect Gift Cards
Scenarios such as bankruptcy filings, store closures, and acquisitions can accentuate the gap in the gift card promise. While each business and situation varies, the following are common circumstances that may affect the value and usability of your gift cards:
Bankruptcy
When a merchant files for bankruptcy, the courts decide if the business can continue to honor gift cards. While many companies enter restructuring hoping to rebound, success is not guaranteed--the store might get shut down or sold instead. For example, Sports Authority filed for Chapter 11 in 2016, promising to honor gift cards. Yet, burdened by heavy debts and without a buyer, the courts liquidated the business. As a result, customers forfeited $93 million in outstanding gift cards.
Acquisition
When a new owner acquires a store or restaurant, the future of the existing gift card program lies in their hands. The acquiring company may choose a "business as usual" or "better than ever" approach to enhance the store while keeping the brand and customer programs intact. However, in other cases, acquisitions might lead to a significant restructuring, such as when a business is bought primarily for its assets and transformed into an online-only operation. In this case, it's rare for new management to honor existing gift cards, leading to customer confusion if the acquiring company retains the brand's identity.
For example, after acquiring The Limited (now a clothing line sold exclusively at Belk stores), the new owners re-opened the website and issued a statement clarifying that they would not accept gift cards, credit cards, or returns from the previous company, leaving many customers with unusable cards.
(I've seen similar scenarios unfold with major retailers like Radio Shack, Toys "R" Us, Coldwater Creek, Sharper Image, and more. Despite the stores appearing the same to customers, the ownership changed—and the original gift cards did not carry over with the sale.)
Store Closure
When a business shuts its physical doors and e-commerce site, outstanding gift cards become unusable because there is no place to use them. Further, if the company remains operational but closes underperforming locations, cardholders may find it challenging to use their gift cards if the closest or most convenient places are gone. For example, when JCPenney announced store closures in 2024, the company made this statement: "...Regretfully, we are unable to continue our current lease terms for these store locations and have been unable to find suitable locations in the market...We continue to work to make every dollar count for America's diverse, working families and welcome them to shop at our other JCPenney stores in the area and at JCPenney.com."
Ok, let's get into some specifics.
Here's a list of store closures that may impact the validity of outstanding gift cards. Please note that this list is updated regularly to reflect the changes in retailer statuses. If you know of closures I don't have listed here, please comment below and I'll dig into it.
Retailers to Watch
Lumber Liquidators: LL Flooring
screen capture from Conn's HomePlus website
Important Details | Conn's HomePlus Information |
|---|---|
Status: | Store closing sales will begin at all remaining stores on September 6, 2024. |
Impact on Gift Cards: | Deadline to use LL Flooring gift cards: September 3, 2024. |
Actionable Advice | Per a letter to customers:
|
Official Statements | |
File a Claim |
So far, no procedure has been identified for filing a claim for gift card reimbursement. Please use your gift cards as soon as possible. For creative ways to use them, refer to our FAQ section. |
Conn’s HomePlus and Badcock
screen capture from Conn's HomePlus website
Important Details | Conn's HomePlus Information |
|---|---|
Status: | Going-Out-of-Business Sale Announced |
Impact on Gift Cards: | I contacted B. Riley Retail Solutions, LLC (the company handling liquidation sales) to ask about Conn's HomePlus gift cards and have not yet received a respond. I will update as soon as I obtain that information. |
Actionable Advice | Per the press release, "Customers are encouraged to shop the sales early to take advantage of the best selection of merchandise before it sells out. All items must be sold." |
Official Statements | |
File a Claim |
So far, no procedure has been identified for filing a claim for gift card reimbursement. Please use your gift cards as soon as possible. For creative ways to use them, refer to our FAQ section. |
Bob's Stores
screen capture from Bob's Stores website
Important Details | Bob's Stores Information |
|---|---|
Status: | Going-Out-of-Business Sale Announced |
Impact on Gift Cards: | Gift cards and merchandise credits will be honored until the close of business on July 14, 2024. Beyond this date, gift cards will no longer be valid. |
Actionable Advice | Customers should use their gift cards before the July 14, 2024, deadline. Please note that all sales are final during this store closing event. The Bob's website is down so purchases must be in stores. |
Official Statements | |
File a Claim |
There is no procedure for filing a claim for gift card reimbursement. Please use your gift cards as soon as possible. For creative ways to use them, refer to our FAQ section. |
Red Lobster
Important Details | Red Lobster Information |
|---|---|
Status: | Chapter 11 Bankruptcy Filed, Considering Reorganization |
Impact on Gift Cards: | The impact on gift cards has not been announced. Given the bankruptcy, gift card policies may be subject to change, and a deadline for gift card use could be forthcoming. |
Actionable Advice | Check the balance of your Red Lobster gift card and plan to use it as soon as possible to avoid potential issues with redemption. |
Official Statements | |
File a Claim |
While court filings and information about the claims process are available at Red Lobster's Claims Agent or by calling (888) 754-0507, I strongly encourage consumers to use their gift cards instead. In bankruptcy, gift card holders are often considered unsecured creditors, and reimbursement is not guaranteed, perhaps even unlikely. |
Big Lots
Important Details | Red Lobster Information |
|---|---|
Status: | |
Impact on Gift Cards: | The impact on gift cards has not been explicitly mentioned. Given the potential for store closures and financial instability, gift card policies may be subject to change. |
Actionable Advice | Check the balance of your Big Lots gift card and plan to use it as soon as possible to avoid potential issues with redemption. |
Official Statements | |
File a Claim |
Given the financial instability and lack of a specific claim process for gift cards, consumers should prioritize redeeming their gift cards promptly (at least before their most convenient Big Lots location closes) rather than wait to file a claim. Stay tuned to official communications from Big Lots for any changes. |
FAQ: Gift Cards for Stores in Bankruptcy
If you hold a gift card to a store in financial distress, use it immediately. Bankruptcy proceedings, store closures, and more can affect the validity of gift cards, and you may lose the ability to redeem the card if the store's financial situation worsens or if convenient locations close.
Many people mistakenly hold onto their gift cards, hoping to get even more for their money during liquidation sales. Two risks arise during liquidation, however. First, the merchandise may be picked over, so there are fewer items to buy. Second, and crucially, stores may stop accepting gift cards midway through liquidation. Even though the store may still be open, there's no guarantee that outstanding gift cards will be honored.
Use your gift card to buy essential items or products that are less likely to need returns, especially since return policies could be restricted during bankruptcy. If you don’t need anything personally, consider purchasing supplies that can be donated to a local school or charity, or think about upcoming birthdays and holidays where you can use the gift card for gifts. Remember, items bought on clearance might not be returnable. Alternatively, if you find little of personal value, you could pass the gift card to someone else who might make better use of it. This approach ensures the gift card does not go to waste and still provides value to someone in your community.
Check online and other locations: First, verify if the retailer continues to operate online or has other locations where the gift card remains valid.
Hold onto the gift card: If no direct redemption options are available, keep the gift card. Sometimes, gift card deadlines are extended, or competitors offer trade-in options. For example, when Toys "R" Us closed, Bed Bath & Beyond provided a limited-time opportunity to exchange Toys "R" Us gift cards for Bed Bath & Beyond gift cards at a reduced value.
File a claim: Consider filing a claim as an unsecured creditor in the bankruptcy proceedings. While this does not guarantee recovery, it's a step towards attempting to recoup some value from your gift card.
1. Unsecured Creditor Status: When you hold a gift card from a store that has filed for bankruptcy, you are considered an "unsecured creditor." This means your claim does not have collateral backing it, placing you lower in priority during the bankruptcy proceedings.
2. Priority of Claims: In bankruptcy, secured claims, which are backed by assets, are honored first. Once these higher-priority debts are settled, there often aren't enough assets left to cover the claims of unsecured creditors.
3. Scale of Debt: Landlords, suppliers, and vendors typically have claims amounting to thousands or even millions of dollars, which significantly outweighs the average consumer claim from a gift card.
4. Impact on Consumers: Although the total outstanding amount for gift cards can be substantial (e.g., $210 million from Borders, $93 million from Sports Authority, $44 million from Radio Shack), individual consumers usually face losses under a hundred dollars, which further diminishes the feasibility of full reimbursement.
The decision to honor existing gift cards lies with the acquiring company, and there is no legal obligation for them to do so. Typically, in a business acquisition, the buyer purchases the assets but not the liabilities, which often include gift cards. It's important to check any official announcements from the company to determine whether they will accept previously issued gift cards.
Selling a gift card from a store in financial distress can be challenging, as most third-party websites that buy and resell gift cards often stop accepting them once a store declares bankruptcy or shows signs of significant financial trouble. If you consider selling your gift card, your best bet might be to offer it to friends or family members as long as you clearly communicate the urgency of using the card quickly due to the store's uncertain future. For safety and to ensure you're not violating any terms, avoid selling gift cards on social media or in unregulated environments.
No specific federal laws protect gift card holders in these situations.
To file a claim, you must follow the bankruptcy court's procedures, which usually involve submitting a proof of claim form. You can find these forms and detailed instructions on the bankruptcy court's or the appointed claims agent's website. Be prepared to provide proof of your gift card purchase and any remaining balance.
How to Protect Your Gift Card Investments
To protect the value of your gift cards against unexpected retailer issues, consider these practical tips:
- Use Gift Cards Promptly: To minimize the risk of loss, use gift cards as soon as you receive them. The longer you hold onto a gift card, the greater your risk of losing or forgetting to use it. The merchant's financial situation could also change, rendering the card unusable or just harder to use.
- Add to a Mobile Wallet: If possible, store your gift cards in a mobile wallet. This not only keeps them secure but also makes them more accessible and top of mind when you are shopping, increasing the likelihood that you'll use them before any issues arise with the retailer.
- Monitor Balances and Terms: Regularly check your gift card balances and be aware of any terms and conditions affecting their use, including expiration dates or fees that could diminish the card's value over time.
- Stay Informed: As long as you hold onto the retailer's gift card, keep a close eye on news regarding its financial health. Surprisingly, many people only discover their gift cards are worthless after stumbling upon them in a drawer long after the store has gone out of business. Act promptly to avoid such disappointments.
- Create a Reminder System: Establish a reminder system to prompt gift card use, such as setting calendar alerts or using an app to track gift card expirations and balance. I store physical gift cards in my wallet next to the debit card I use most often, and I put egift cards into an email file--or take photos of the cards and organize them in my camera roll until each gets used. Seeing the cards often helps me remember to use them.
- Register Your Gift Card: Register your gift card with the retailer. This can help protect the balance in case the card is lost or stolen and may provide better recourse in the event of a retailer's financial trouble. If the retailer prompts you to use registered gift cards (like Amazon does), you're more likely to remember to do so.
By adopting these strategies, you can significantly reduce the risks of holding gift cards and ensure that you maximize their value, regardless of changes in the retailer's circumstances.
Wrapping It Up: Could Gift Cards Save Retailers?
The retail landscape is constantly evolving, and with it, the fate of gift cards during store financial challenges. Staying proactive is your best strategy to safeguard the value of your gift cards. Whether a store is heading towards bankruptcy, undergoing acquisitions, or closing down, the key takeaway is to use your gift cards as soon as feasible.
Beyond individual consumer action, it's crucial to debunk a common myth: some believe merchants prefer customers not to redeem their gift cards, benefiting from what's known as breakage—the amount left unspent on cards. However, this notion doesn't hold for businesses focused on long-term customer relationships and financial health.
Merchants actually benefit more from redeemed gift cards through additional sales and customer loyalty than they lose through breakage. Take Borders, for example. With $210 million in outstanding gift cards at its collapse, could a push for redemption have altered its fate? While it's speculative and the math complex, it's an intriguing possibility. In my blog post, "Myth Buster: Merchants Don't Want You to Use Their Gift Cards," I demonstrate how $100 in redeemed gift cards lead to five times the spending and over seven customer interactions—with even more downstream benefits. Imagine the potential impact of $210 million in active, loyal consumer spending!
Lastly, let me put this out there.
I'm not doing all the work of researching these businesses and writing this post to criticize companies that are already struggling. I'm tracking these gift cards to help consumers avoid losing out on gift cards that might become invalid in the coming months. But more importantly, I want to promote a healthier retail environment overall--where consumers maximize their purchases and businesses thrive through genuine customer engagement.
Let’s keep pushing for a market where gift cards are always a win-win.
Happy gifting!
Shelley Hunter, Consumer Guide to Gift Cards
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