What the Borders Bankruptcy Could Mean to the Future of Gift Cards

by Ben Jackson 0

Book seller Borders Group, Inc.’s liquidationplan calls for it to continue honoring gift cards and providingdiscounts to members of its loyalty program. The demise of theretailer and the process of its liquidation will have effects onthe gift card industry and give clues to the shape of things tocome.

The company’s chief executive officer, Mike Edwards, recently sentout an e-mail to members of the Borders Rewards program encouragingthem to use their gift cards and rewards membership perks to getdiscounts during the store’s liquidation sales, according to anumber of websites. The e-mail, which was posted on the consumeradvocacy site consumerist.com (http://consumerist.com/2011/07/borders-ceo-emails-goodbye-email-to-customers.html)also says the company will honor its ‘Borders Bucks’ that membersuse for purchases. These will expire on July 31.

Borders has done the gift card industry a favor by continuing tohonor the cards. While Borders no doubt had to obtain permissionfrom the courts to do so, by asking for it, the company staved offa round of consumer panic about gift cards. It may have also helpedprevent future regulation on gift cards that would require cardfunds to be held in trust until they are spent. On top of all ofthat, a battle over Borders gift cards would likely have led tomore state laws, which take precedence under the CARD Act.

Honoring gift cards in a liquidation is good business sense in thatclear evidence exists that shows shoppers spend more than the facevalue when they redeem gift cards. Based on the publicly availabledata, the numbers show that using a base of all gift cards,consumers tend to spend about a third more than the face value ofthe card. However, some retailers have said privately that thenumber is much higher because the cards used for things likereturns and store credits have been factored into some upliftcalculations.

The Borders bankruptcy also leaves clues to future shopping trendsand thus gift card sales. These trends are important to bothretailers and distributors of gift cards. The end of Bordersreflects societal trends: reasons for the bankruptcy given invarious analyses include losing market share to Amazon.com, Bordersoutsourcing its website operations to Amazon, and a reduced demandby the public for books.

In a survey of convenience store owners conducted by Mercator inconjunction with CSP Magazine, operators reported thatsales of gift cards for book stores declined 10 percent from 2009to 2010. Meanwhile online music and video cards grew by 34 percent,sales for gift cards for online retailers grew by 111 percent, andinternet game card sales grew by 112 percent.

As consumers change their behavior and the ways that they interactwith the world, their payments choices and behaviors will reflectthose choices. Providers will be forced to adapt and read the tealeave to know what the future holds and where best to allocateresources in places like card malls and incentive programs.

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