Steel Pipes and Gift Cards

by Ben Jackson 0

In the United States, bookseller Borders Grouphas filed for bankruptcy, though it is continuing to honor its giftcards and operate its rewards programs. In a bizarre twist ofcoincidence, the company that operates bookstores under the Bordersname in Australia and New Zealand (REDGroup Retail) has entered avoluntary version of bankruptcy. In that case, however, the companyhas chosen to honor gift vouchers only if the cardholder spendstwice the face value of the voucher.

This has led to enough consternation among cardholders that thecompany is adding to the security presence at its stores. Accordingto The New Zealand Herald Web site, at least one staffer at a storein New Zealand was threatened with a steel pipe in a dispute overredemption. In another store, a publisher’s representative wascaught trying to steal back books. We have seen a similarrequirement in bankruptcies in the United States, and while (to myknowledge) no one got knocked over the head, the proposal did goover like a lead balloon.

When a company is entering bankruptcy, or even considering it, itshould make honoring gift cards, certificates, and vouchers a partof its plan for reorganization for three reasons. First, allowingredemption of the cards will bring in customers who want to makesure they do not lose the value of their cards and who will likelyspend more than the face value of the card in hunting for deals.Second, allowing those gift cards to be redeemed will help ifliquidation becomes necessary because it will simultaneously reduceboth liabilities and inventory. Third, if the company survivesbankruptcy, those customers who were able to redeem cards are muchmore likely to keep shopping with the store than if they felt likethey were robbed of their money.

In addition, competitors and other retailers need to consider whatmessages they will give their customers as part of the market goesinto bankruptcy. Keeping customer confidence high is a necessarypart of the marketing plan of any company, but it is especiallyimportant to those customers who have entrusted the company withtheir money for safekeeping.