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Gift cards remain popular despite pandemic but come with a risk if store closes


TORONTO — Chris Corson has soured on gift cards this holiday season after the store she planned to spend them at was one of the growing casualties of the COVID-19 pandemic.

Swimco went bankrupt in October after 45 years in business, leaving Corson with $328 of worthless gift cards the Calgary-based company refused to accept before it shuttered stores.

"I would not recommend buying or gifting gift cards to anyone," she wrote in a message after posting her frustrations on Twitter.

"Swimco had the nerve to message me somewhere that a lot of gift cards never get redeemed anyways."

Gift cards remain a tradition at Christmas and are increasingly popular as more Canadians shun stores to avoid catching the virus.

About two per cent of gifts this holiday will be given in the form of cards, according to a Retail Council of Canada survey.

"It was clear that many consumers anticipate spending part of their budget on gift cards and specifically this year because many people are not able to get together physically for the holiday season," said council president Diane Brisebois.

Buying gift cards can be risky, however, as a number of retail chains wind down their businesses in the face of reduced mall traffic prompted by the pandemic.

Insolvent clothing retailer Le Chateau, for example, says it will only accept gift cards until Dec. 3 as part of its liquidation.

"Holding onto gift cards could bring uncertainty to most Canadians because what happens when you buy a gift card is you are pretty much giving the company a loan," said Alex Don, president of the National Canadian Lawyers’ Initiative, which is providing free legal advice to people and businesses struggling during the pandemic.

Gift card holders become unsecured creditors during insolvency proceedings that result in liquidation and are unlikely to secure any refund.

While many gift card purchases are made at large retailers, it's the smaller stores that are most affected by COVID-19 and in most need of extra cash flow.

Retail analyst Bruce Winder suggests consumers can instead help their local merchants by making purchases.

"It's kind of unfortunate, but there is a risk, a higher risk with small- to medium-sized companies that they just might not be here in January or February," he said in an interview.

The author of the book "Retail Before, During and After COVID-19" urges gift card holders to use them as soon as possible to avoid any surprises in the new year.

"Use it right away, like literally right away, like as soon as you get it."

Brisebois says gift cards remain a viable option because most retailers going through creditor protection restructure and remain in business.

"I believe it's a very low risk, and I believe that consumers who are buying gift cards are buying gift cards from recognized merchants regardless of size," she said.

The purchase of gift cards and electronic versions are growing even though this year is very different because of the pandemic, says Brittain Brown, CEO of Givex, which processes transactions for gift and loyalty cards.

E-gift card sales, which account for 18 per cent of the overall gift card market (up from seven per cent last year), are up 34 per cent in 2020. 

Gift card sales are good for merchants that are looking for various sources of cash flow to keep their businesses running after a quieter period in March and April.

They are also a marketing tool that encourages consumer spending. Gift cards are a replacement for cash, which is becoming less and less popular, and is useful for people, including kids, who don't necessarily have credit cards.

While some money goes unspent on cards, that's not what merchants want to see happen, said Brown.

"You actually want your consumer to come in. You want them to come in not only and spend that card, but most likely spend more than what's on that card. Getting a bit of an uplift," he said.

A recent Givex survey found that nearly 61 per cent of Canadians were spending more than the value of their gift card upon redemption.

Gift cards are normally valid for years, if not indefinitely. Federal Trade Commission regulations from 2010 declared that money on a gift card can’t expire for at least five years. 

In Canada, regulations differ by province but the situation changes when a business declares bankruptcy, says the Better Business Bureau of Canada.

At that point the court decides whether and for how long to accept gift cards, it said in an email.

It urges consumers to use gift cards immediately if they see news about a company preparing to file for bankruptcy.

The bureau gives the following three tips: First, before buying a gift card, look into the retailer’s financial condition: If news articles report that a company is on shaky ground, it might be best to purchase a gift card from another retailer. 

Second, check the terms and conditions. A gift card’s terms may allow the card to be used at another business location. 

Lastly, purchase gift cards with a credit card, if possible: Your credit card company may be able to help recover money lost if a business goes under. Some retailers, however, require gift cards to be purchased with cash. 

This report by The Canadian Press was first published Dec. 3, 2020.

Ross Marowits, The Canadian Press