Who Are Your Partners?
April 07, 2008
It's not about the cards, it's about how you do business, say gift card industry reps
By Alex Palmer
The bankruptcy of The Sharper Image in late February, and the subsequent back-and-forth on its gift card acceptance policy (first not accepting the cards, then accepting them on the condition that they be put toward merchandise for twice their value) caused headaches for cardholders and members of the gift card industry alike. A number of publications and Web sites began raising concerns that with gift cardholders positioned as "unsecured creditors" to retailers, and among the last to be repaid when a company files for Chapter 11, consumers and incentive winners would be left vulnerable, particularly in a struggling economy.
As the media raised the alarm, the gift card industry responded with a combination of calming-the-waters efforts and genuine surprise at the level of anxiety targeted specifically at gift cards.
"That was blown way out of proportion," says Tom Simonson, president of gift card fulfillment house Incentives Inc. Saying that retailer bankruptcies are not uncommon, Simonson mentioned the bankruptcies of Musicland and Venture Store, as well as firms that have faced recent financial trouble that raised flags for their partners in the past. "What happens is that as soon as we hear that there's any kind of financial difficulties at all, we stop offering them."
Simonson explained further that for those who won their cards through an incentive program, often the planners can work something out in the case of unexpected bad news. He cited a recent example in which his company calmed a potential fire when a major retailer partner printed duplicates of the same batch of 200 cards. Winners on both coasts received identical cards, and those who were slow to spend theirs found their balances reduced or spent completely. "We sent them all new cards," says Simonson. "[The retailer] subsidized the cost, but we had to eat some of that cost as well."
Cindy Mielke, president of the Incentive Gift Card Council's board of directors, posted a statement on their Web site several days after the bankruptcy was announced, acknowledging the challenges of the current economic downturn and offering the council's recommendations.
"We advise all our members and customers to do their research when choosing a business partner," reads the statement. "The question for all of us in business today is…'If your company is financially sound, what are you doing now to assure potential buyers of that fact?' Here is a tremendous marketing opportunity for you to stand out among other gift card and reward choice suppliers."
Other members of the gift card industry struck a similar tone, seeing the Sharper Image incident as a warning to all businesses, not just gift card providers. "It has really nothing to do with merchandise, gift cards, or the incentive business," says George Delta, counsel to the Incentive Federation, who says that though The Sharper Image may be a more high-profile situation, bankruptcy happens often and is nothing new. "It has to do with whom you're doing business with."
A similar tone of caution was urged on consumers and incentive winners.
"What we believe is that choice is the best reward," says Rick Gordimer, marketing communications director of IncentOne. "We let them choose what they want based on their own taste and preferences, and if one of the things that drives that is concern about a particular store, then hopefully they can just choose other things."
It's also a matter of using cards in a timely manner. "Gift cards aren't intended to be savings vehicles," says Brian Riley, senior research analyst for research and consulting firm The Tower Group. It was The Tower Group that estimated that $75 million in consumer spend would be lost in 2008 due to similar bankruptcies, which was what set off much of the furor. Riley, like the industry speakers, urged consumers and planners simply to be cautious. "They should give some forethought into the business they're trading with," says Riley.
Send comments to alex.palmer@nielsen.com.
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