Consumer advocate Linda Sherry minces no words for gift card holders: "get your butts to the store and buy what you want to buy!"
That's particularly good advice for consumers who hold gift cards for Borders bookstores, which said it is very close to a "liquidity crisis".
Borders (BGP) said Friday it faced a severe cash crunch. While the bookstore chain has not said it would seek Chapter 11 bankruptcy protection, that would be an obvious solution. If that were to happen, Borders would be able to reschedule - or in some cases cancel - its debt.
Unfortunately for the consumer, that debt can include gift cards. Thousands of people have been left holding worthless debt cards to companies like Circuit City and Sharper Image. San Francisco based Sharper Image first filed for bankruptcy in early 2008 and suspended its gift card program at first. It later created a bizarre series of rules - demanding consumers holding $50 cards to spend at least $100 to qualify. Ultimately Sharper Image was sold to a holding company and the gift cards once again became worthless.
"They would certainly be in a legal position to do that" says Santa Clara University Law School professor Scott Mauer. "Any money going out is supervised by the courts, and big creditors have just as big a right to a claim as you do."
Publisher Rowman and Littlefield announced it will not send new books to Borders Bookstores until the retailer resumes payments to vendors. The imprint, which publishes books like Extravagant Expectations: New Ways to Find Romantic Love in America, is the first to pull its products but it may not be the last.
Vendors often begin to limit shipments of new products to companies nearing bankruptcy.
Borders did not respond to our inquiries, though that's not surprising. Companies on the brink need to be very careful about the wording they use to describe their financial situation. Commenting to the Wall Street Journal on Borders' failure to pay book publishers, spokeswoman Mary Davis read a statement that said only "Borders has determined that it is necessary to restructure its vendor financing arrangements and is delaying payments to certain of its vendors. Borders has notified these vendors and will be working with them to restructure their arrangements."
