by | May 9, 2020 | 4 comments

Given the current state of the economy driven by the impacts of COVID-19, retail bankruptcies have been on the upswing and many expect many additional bankruptcies on the come. The big question for the gift card reselling hobby is, how do retail bankruptcies affect the value of gift cards for the brand that goes bankrupt?

 

Does the brand disappear in bankruptcy?


The answer is…  maybe. The first distinction we need to make is that there are different kinds of bankruptcies in the U.S. Two of the most prevalent are Chapter 7 and Chapter 11.

 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes referred to as “liquidation bankruptcy”. Under Chapter 7, firms will attempt to sell all assets (i.e. the things they own) and repay their creditors (i.e. the people they owe money to). The brand name will sometimes be sold and revitalized by another company but the original company largely ceases to exist.

 

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is sometimes referred to as “rehabilitation bankruptcy”. Under Chapter 11, firms will attempt to reorganize their debts (i.e. the money the owe) and become a more financially viable and stable company. The brand still exists and the company still operates.

 

What happens to my gift cards in bankruptcy?


We won’t mince words, when we see a brand is going bankrupt (either Chapter 7 or Chapter 11), we attempt to get rid of our gift cards for that brand as quickly as possible.

If a company files Chapter 7, there may be ways to recoup some of the gift card value from the company. We have (thankfully) not had to go down this path before. Notably, we are part of most of the large gift card reselling marketplaces (both public and private) and once headlines begin to circulate that a brand may go bankrupt and liquidate, many (if not all) will stop allowing you to list/sell your gift cards.

If a company files Chapter 11, the brand and company still exist and the value the gift cards is determined by the bankruptcy proceedings. During this pandemic, there may be some strong brands that go bankrupt due to short-term impacts but the brand remain strong and the gifts cards retain their secondary market reselling value.

 

Looking back to Toys “R” Us in 2017

On September 18, 2017, Toys “R” Us (TRU) filed for Chapter 11 bankruptcy to allow it the flexibility to manage it’s debt (~$5b) while also borrowing an additional $2b so that they could pay their vendors for the Christmas season. Fast forward to March 15, 2018 when Toys “R” Us filed for liquidation after holiday sales underwhelmed. US gift cards would be valid through April 21, 2018 and Canadian gift cards would be valid through March 22, 2018. Ultimately, other retailers took advantage of the Toys “R” Us misfortune and offered discounts in their stores in exchange for unused TRU gift cards. That said, many gift cards expired unused and the value was lost. TRU should serve as cautionary tale for those that do not liquidate their gift cards quickly following a bankruptcy filing. Ultimately, we did not personally go through the TRU process so HT to reader Ash for the inspiration to add this section.

 

So what can I do?


Try your best to keep up-to-date on the brands for which you have gift card inventory. We will update our bankruptcy tracker as quickly as possible but the onus is on each of you to ensure the brands you are buying will likely remain viable long enough for you to liquidate your gift cards.

 

 

2020 Notable Retail Bankruptcies


Click on the brand names below to see complete details.

Pier 1 Imports

Pier 1 Logo - Gift Card Report
Bankruptcy Impact On Gift Cards - Gift Card Report

Details


According to the WSJ, Pier 1 Imports is planning to permanently close their retail stores and will down operations as soon as possible after they can reopen their stores (temporarily) and liquidate inventory. At the time of their bankruptcy filing in February, the company permanently closed roughly 50% of their store base. Unfortunately, we will soon see the remaining 50% close as well. A hearing to authorize the wind-down is scheduled for May 29.

Update: On May 29th, Pier 1 received court approval for liquidation will all assets expected be sold by mid-July

 

What This Means For Gift Cards


If you’re still holding any gift cards, you might be out of luck. Unfortunately, Gift Card Mall ran a promotion on these gift cards as recently as last month when a reorganization of Pier 1 was still the goal so we hope none of you partook in the sale. I doubt any major gift card marketplaces will allow the cards to continue to be listed. Your only easy option is likely to buy something with it during the liquidation process and attempt to resell it. We hope this is not the start of more retail liquidations but the future does not look bright.

JCPenney

JCPenney Logo - Gift Card Report

Bankruptcy Impact On Gift Cards - Gift Card Report

 

Details


On May 15th, JCPenney announced that it has filed petitions for Chapter 11 Bankruptcy due to the “impact of the unprecedented Coronavirus (Covid-19) pandemic”. The company believes this financial restructuring will “better position JCPenney for the long-term”. During the bankruptcy process, “JCPenney will reduce its store footprint to better align its business with the current operating environment.” Specific store closure details will be announced in the coming weeks.

Update: According to reports in July, the chain is looking to sell itself through an expedited process. The chain hopes to emerge from bankruptcy with ~600 stores versus the ~850 upon entering bankruptcy.

 

What This Means For Gift Cards


While there have been no announcements on the validity of gift cards, the Chapter 11 (reorganization) rather than Chapter 7 (liquidation) bodes well for gift card holders. That said, the continued “store optimization” (i.e. store closures) and the ongoing economic impacts of the pandemic will likely lead to further reduced demand for the brand (& their gift cards) overall. If we were still holding on to JCPenney gift cards, we would be liquidating them.

Brooks Brothers

Brooks Brothers Logo
Bankruptcy Impact On Gift Cards - Gift Card Report

 

Details


On July 8th, Brooks Brothers announced that it has filed for bankruptcy due to the impacts of the pandemic and continued shift towards more casual office wear attire. The company had been attempting to sell itself before the pandemic and has attracted significant interest from potential acquirers, according to CNBC. That said, the acquirers preferred to buy the brand with fewer stores and the brand has chosen to close 51 (of ~250) North American stores due to the impact of the pandemic.

Update: Brooks Brothers has agreed to be sold to a joint venture between Simon Malls and Authentic Brands for $325m. The company has plans to keep at least 125 stores open.

 

What This Means For Gift Cards


While there have been no announcements on the validity of gift cards, the Chapter 11 (reorganization) and attempted sale of the company rather than Chapter 7 (liquidation) bodes well for gift card holders. That said, the closure of ~20% of North American stores and the ongoing economic impacts of the pandemic will likely lead to further reduced demand for the brand (& their gift cards) overall. If we were still holding on to Brooks Brothers gift cards for reselling purposes, we would be liquidating them. Notably, the brand was selling gift cards directly at an ~14% discount last month so we hope none of you are stuck holding on to those cards.

California Pizza Kitchen

California Pizza Kitchen Logo
Bankruptcy Impact On Gift Cards - Gift Card Report

 

Details


This morning (7/30), California Pizza Kitchen announced that it has filed for voluntary Chapter 11 Bankruptcy in order to implement their pre-negotiated restructuring support agreement. Under the agreement, the company will equitize (i.e. convert debt for equity in the company) the vast majority of the company’s long-term debt. According to the company, this filing will allow the company to “close unproditable locations, reduce its long-term debt load, and emerge from bankruptcy as a much stronger company. Ultimately the company is looking to exit the bankruptcy process within 3 months.

Click Here To See Full Press Release

 

What This Means For Gift Cards


If you’re still holding any gift cards, the good news is that the brand is not liquidating and the bankruptcy process is expected to be relatively short. The bad news is that the company will be closing down some stores (negatively impacting the resell value of the gift cards) and the pandemic has limited dine-in restaurants nationwide (negatively impacting the demand for the gift cards). Notably, some gift card marketplaces have already disallowed the listing of California Pizza Kitchen gift cards so move fast if you want to try to liquidate.

Chuck E. Cheese

Bankruptcy Impact On Gift Cards - Gift Card Report

 

Details


On July 25th, CEC Entertainment (owner of Chuck E. Cheese announced that the company would be filing for Chapter 11 bankruptcy. The company said they expect to use the time and legal protections made available through the Chapter 11 process to continue discussions with financial stakeholders, as well as critical conversations with its landlords, to achieve a comprehensive balance sheet restructuring that supports its re-opening and longer-term strategic plans.

Click Here To See Full Press Release

 

What This Means For Gift Cards


Chuck E. Cheese gift cards are sold at a discount often with Sam’s Club providing 20%+ discounts on the cards regularly. Most public exchanges are likely to not allow listing of the cards until the brand emerges from bankruptcy but I would still attempt to liquidate your gift card holdings if you can. Chuck E. Cheese requires large groups touching games repeatedly which is not the best business model in the current environment.

Luby's & Fuddruckers

Bankruptcy Impact On Gift Cards - Gift Card Report

Details


On September 4th, the Board of Directors announced the unanimous adoption of the liquidation and dissolution of the company. The plan of dissolution outlines an orderly sale of the Company’s business, operations and real estate, and an orderly wind down of any remaining operations. The company expects the full implementation to take one or more years to complete in order to maximize the value that can be returned to shareholders.

What This Means For Gift Cards


If you’re still holding any of these gift cards, you are likely to be out of luck. There may be legal options available to you to join the bankruptcy process but we are not lawyers.

 

 

4 Comments

  1. I came here looking for The Plastic Merchant!

    Reply
    • Looking for what about The Plastic Merchant in specific?

      Reply
  2. You didn’t go through toys r us liquidation 2 years ago?

    Reply
    • Thankfully did not. I did not get into gift card reselling until late 2018/early 2019 so I started after Toys R Us in 2017.

      Reply

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