Literally all the major chain stores and many small local shops in Australia issue gift cards and certificates. These cards are promoted as ideal gifts to give to people, rather than buy them presents that they may not like or want. These gift cards purportedly allow recipients to buy the equivalent of their face value at those stores. Or do they?
The stores that issue gift cards would like shoppers to believe that their gift cards are as good as cash and nicer to give as gifts than cash. Nothing could be further from the truth.
One of the major store chains that issued gift cards was the huge Angus and Robertson (A and R) bookstore group. In early 2011, this conglomerate went broke and was placed in the hands of administrators Ferrier Hodgson. The administrators immediately changed the conditions of A and R gift cards.
Instead of the A and R gift cards being worth their face value, the administrators placed a number of conditions on those cards and these were handed to customers who went to the stores to redeem those cards. Here are some excerpts from the FAQs issued by the administrators:
In August 2012, the Allans Music holding company that had purchased the Billy Hyde music shop chain some years ago were placed into receivership. Although the receivers, Ferrier and Hodgson, stated that the company would try to keep trading while ways were found to restructure and sell some of the stores, the news for people holding gift vouchers was all bad.
The receivers stated that due to the financial circumstances of the company, gift vouchers would not be honoured and deposits would not be refunded. Such customers would have to join the queue of unsecured creditors and how much money they received back would depend on whether - and for how much - parts of the business were sold.
So there is another stark example of why to never ever buy gift cards, simply because they are not worth anything at all unless the issuing company agrees to honour them. Of course if a company such as Billy Hyde Music goes broke, gift cards bought by unsuspecting customers become completely worthless unless the receivers manage to salvage something for them, which in most cases is a few cents in the dollar, but usually nothing at all.
In February 2013, Mothercare customers lost the value of gift cards and deposits since the baby clothing retailer was put into voluntary liquidation. Mothercare refused to honour gift cards or deposits after going into administration. In a notice to customers, the administrator said Mothercare credit notes and gift cards cannot be redeemed. It also said refunds of order deposits would not be given and exchanges would only include full-priced items if the purchase is within two weeks.
A Newcastle woman, Bonnie Humphries, bought a $200 gift voucher a day before the company went into administration. Three days later, she was told her voucher was no longer valid. She stated, "I went over to the shop to ask why I was issued a voucher the day before they went into voluntary administration. The answer was, they didn't know."
It does not matter how big or small a company is, the risk of being stuck with gift cards and vouchers is simply not worth taking. The worst aspect is that companies that are about to go broke will keep selling their gift cards regardless, as in the case of Bonnie Humphries, who lost $200 literally on the spot because she was not informed that Mothercare was going into administration the very next day after she bought the Mothercare gift voucher.
In December 2015, Dick Smith chain stores kept selling gift cards over Christmas in the lead-up to its voluntary administration, announced on 05 January 2016. The gift cards are now virtually worthless, with the receiver appointed by the retailer’s bank stating that it will not honour gift cards or refund deposits.
One customer, Ray Cohen was lucky enough to cash in his gift card before Dick Smith went bust, but was less than impressed with how the company tried to pull the wool over his eyes. In a conversation with the retailer via its Facebook page on 29 December 2015, Cohen expressed concern over whether the gift card would hold its value.
"I’m just worried Dick Smith will go bankrupt before I manage to spend it,” he wrote. “People on the street say DSE is going bust. Please can you send some info out regarding your viability.”
Amanda, a member of Dick Smith’s online help team, came back with a reassuring response. “Hi Ray, you have nothing to worry about. We will be here a long time to serve our customers.”
But within just six days of that reassurance from Dick Smith personnel, the chain store was placed in the hands of receivers. Even worse, even on the morning that Dick Smith stores were going into administration, customers were told to hang onto their gift cars because they would be able to be used "in a few days". But receiver Ferrier Hodgson this morning released a statement confirming that it would not honour outstanding gift vouchers or refund deposits paid for goods.
Angry shoppers have taken to Facebook to blast the company for luring them with its widely publicised fire sale, only to leave shoppers out of pocket. One angry shopper stated, "Management would have had to have known the way things were headed and chose to bombard my inbox with at least two emails per day for their supposed sale. Yeah, right. All that did was get people to order online when you knew the orders would never be filled and reduce your own debt in the process."
So again, many customers were scammed by buying worthless gift cards. The unconscionable act was that Dick Smith management knew weeks ago that their stores were going to go broke, yet held a "Fire Sale" where expensive goods were being sold at a massive loss, obviously to drag in the cash before the collapse of the business. In that sale, gift cards were being sold to customers, who were being assured that they would be honoured and of course that was a blatant lie and a barefaced fraud.
But as with all other gift card scams, it is the defrauded customers of the stores who pay the penalty by not getting what they paid for. The directors and senior management of Dick Smith will walk out completely unscathed to move onto other lucrative senior executive positions with other companies. These are the people who should be charged with fraud and forced to fully reimburse all Dick Smith customers who bought those useless gift cards, but unfortunately, this never seems to happen.
Pumpkin Patch was a runaway success story. At its peak in 2007, the fashion label for children was valued at $790 million, with hundreds of stores across the globe. Nine years later, the clothing empire was worthless, after it was placed into administration, owing $76 million. Pumpkin Patch gift cards were only honoured for up to 50% of their purchases amid receiver KordaMentha’s liquidation sale.
Gift cars are one of the most dodgy purchases that anybody could buy. They are only worth the value that the issuer will redeem them and if the company goes broke, they could be rendered worthless. If you can't think of what to buy for somebody as a gift, give them cash. It may appear rather crass, but the way to do this is to put a note with the cash that says - "I was going to get you a gift card, but with the number of stores going broke and gift cards becoming worthless, you will find that the cash that you are receiving will never expire or become worthless."
The Australian operations of American chain Toys 'R' Us was placed under administration in May 2018 after the closure of its US and British stores. Administrators McGrathNicol said that gift cards and vouchers would be honoured, provided that customers spent an additional equivalent amount in store. "In other words, to use a $100 gift card or voucher in full, customers must spend at least an additional $100 in store," the statement read. "Gift vouchers will not be honoured online."
This is yet another example where people have been conned into buying worthless gift cards. The condition placed on Toys 'R' Us gift card purchasers was most unfair, as no such condition was revealed when those gift cards were bought and this sort of coercion should not be allowed. Australian authorities need to introduce a law that forces administrators to treat gift card holders as preferential creditors and ensure that they can walk into a store in administration and redeem their gift cards for goods or cash of the same value before any other creditors.
As can be seen from the above examples, the stores issuing gift cards are actually under no obligation to honour them. The truth is that gift card holders become unsecured creditors of stores issuing them and are just added to the pile of other unsecured creditors if those stores go broke, having little or no chance of recovering the value of those gift cards.
If a store that has issued gift cards finds itself in financial trouble, even if it does not actually go broke, it can still renege on its gift cards and refuse to honour them until the store becomes more secure, but in fact does not have to honour them at all. Recipients of those gift cards would have to take legal action against that store to recover the value of that gift card and invariably that would cost much more than it is worth. The stores rely on this situation, but never tell this to their clientele. In other words, those gift cards are really not worth a cracker.
Statistics show that many people who receive store gift cards fail to redeem them by the expiry date and they are thus rendered worthless. However, there is nothing worthless about the money that the stores have received for those gift cards.
Stores love to issue gift cards because they are a massive source of revenue, not because people are driven to use them for purchases, but because for many reasons, they are not redeemed, literally giving those stores money for nothing. Wikipedia offers this insight:
According to news reports, Australians spent $1.2 billion on gift cards in 2010. But what is staggering is that 30% of those cards were not redeemed, giving Australian stores that issued those gift cards a massive $360 million for free, merely for printing up and selling those gift cards. No wonder the stores are constantly pushing these pieces of plastic onto consumers, knowing that around one in every three gift cards will not be redeemed. This has to be the easiest way to make money for free.
Anybody who analyses these facts can see that gift cards are a massive scam and could easily come to the conclusion that stores that issue these gift cards understand human nature and take advantage of it, reaping massive profits by marketing these devices. But consumers should be aware of the traps and learn not to get caught. Here are some hard facts about gift cards.
It is understandable that people don't like giving cash as birthday or other gifts. However, giving cash has many advantages.
There are many other reasons why giving cash is far better than buying a gift card. It may not be quite as elegant, but there are no disadvantages. For instance, a lovely personalised gift certificate can be designed on a computer, printed and presented with enclosed cash tied with a cute ribbon to the recipient. If the recipient is not located nearby, that personalised gift certificate can be emailed and a direct deposit of cash can be made to the recipient's bank account with an explanation as to why a gift card is far too dodgy to ever buy for them.
In that way, recipients can do whatever they like with the money, spending it wherever they like or even just saving it or paying bills - it's entirely their choice. But gift cards have absolutely no advantages over cash. People should completely avoid buying gift cards under any circumstances.