Sharper Image's Gift Card with Zero Value

By Marty Orgel

As you are reading this, you might need to check your wallet as well. Because if you own one of many gift cards issued by Sharper Image company I am afraid to rock your boat that it is now has zero value.

See the following report below.

SAN FRANCISCO (MarketWatch) -- The Sharper Image's Chapter 11 bankruptcy filing reveals the downside of popular and convenient store gift cards. Tens of millions of dollars in gift cards and certificates became worthless overnight in the wake of the Sharper Image's financial plight -- and customers holding those cards have little recourse. Federal law allows a company to stop honoring store gift cards when it files Chapter 11 bankruptcy, and that's exactly what's happening at San Francisco-based Sharper Image. Sales clerks are telling customers they can no longer accept the plastic cards as payment, and the cards are no longer accepted when customers try to use them online.

Sharper Image could be sitting on as much as $25 million dollars in gift card money, according to an estimate by Brian Riley, a senior analyst with the Needham, Mass.-based TowerGroup, a research and advisory services firm. Riley follows Sharper Image. That figure comes from the retailer's Form 10-K filing in January 2007, in which the company reported it had $31 million in deferred revenue on its books. Riley estimates 80% of that is from gift cards. "My swag estimate and it's not more than a swag guess," Riley said, "is that Sharper Image has between $20 and $25 million in ... open gift cards." That's millions of dollars in cash shelled out by consumers who bought or received Sharper Image gift cards before the company filed for bankruptcy.
The gift card market is a $50 billion dollar a year industry, but it's an industry with few controls in place. Many states have ruled that gift cards cannot expire except under specific, limited instances. But in situations where a company goes bankrupt, consumers' standing is much less clear.

Federal law does say the holder of the certificate or card may have a claim against the bankruptcy estate. But Riley believes all of those cards and store credit receipts are probably worthless. "There's a good chance the dollars will be lost," Riley said. "A lot will have to do with how the courts interpret it and how the consumer should be protected." Rays of hope

A customer service representative answering Sharper Image's toll-free telephone number said customers should check back with store workers in mid-March, because company officials are still trying to determine whether they will eventually honor those cards. Riley said there is a slim chance that could happen, especially if Sharper Image intends to try to stay in business. In that case, company officials may decide to honor gift cards as a good faith effort for customers.

Riley said he doesn't expect that to happen. But there is enough action being generated online that consumers should hold on to their Sharper Image gift cards and check back with the company from time to time in case it decides to accept them again, if just for the positive public relations that action would generate. The Sharper Image bankruptcy is already generating offers from other retailers hoping to capitalize on the ailing company's woes. For a limited time, rival gadget retailer Brookstone Inc. is offering a 25% discount for anyone who turns in a Sharper Image gift card when making an in-store purchase. Brookstone is not offering customers 25% of what their Sharper Image gift card is worth - it's offering to take 25% off the Brookstone purchase price for anyone who turns over a Sharper Image card. Other rules apply, so shoppers should check with the retailer for complete details. See details on the Brookstone site.

A relatively new company that offers insurance on gift cards is Leverage. The Web site, now operating in beta, will exchange Sharper Image gift cards for any other cards it carries, for equal value. The caveat, though, is that you had to have bought your original Sharper Image gift card through the site. See full story. Riley said the Sharper Image situation illustrates an often overlooked drawback in gift cards, even as they grow more popular every year. "You're really just putting money into an unsecured institution," he said. "That is something people don't usually realize when they buy gift cards." Consumers can petition the courts in an effort to recoup some of the value on the cards, but it likely will be a frustrating experience, Riley said. "Who's going to go through all of that effort," he said, "for a $25 or $50 gift card?"