Wednesday, November 12, 2008

Gift cards get a loud, 'Bah, humbug'

Gift cards have consistently been a holiday blockbuster for the restaurant industry. But that streak’ll end if several public watchdogs have their way. They’re warning shoppers to forego the no-brainer gifts because the chain or restaurant accepting the card could go bankrupt after the holly wreaths and mistletoe come down.

Those Scrooges include Richard Blumenthal, the attorney general of Connecticut. He’s cited in a Hartford Courant column by George Gombossy as flatly advising consumers to bypass the cards because “many more restaurants” will throw in the napkin. Indeed, Blumenthal said he’s speaking with the Connecticut Restaurant Association about forming what amounts to an insurance pool. Restaurants offering gift cards would all contribute small amounts to the fund, which would be used to make good on gift cards issued by operations that go under. Consumers could tap the kitty for a refund, then use the cash on places still in business.

Blumenthal is clearly using some broad strokes to tar the industry. Is a well-capitalized chain steakhouse really as likely to go under as Salty Ed’s Fry House and Bait Emporium? Yet he’s reportedly saying gift cards from all restaurants should be shunned like an I.O.U. from Michael Jackson. No wonder Gombossy titled his column, “Use Gift Certificates Now, And Don't Give Any.”

But Gombossy and Blumenthal are hardly alone in suggesting Aunt Lil give you an argyle sweater instead of that $100 piece of plastic for Ruby Tuesday. An article in yesterday’s Los Angeles Times was headlined, “Consumer Alert: Are your gift cards safe?” It cited a warning from the Tower Group consulting firm that shoppers could lose $75 million charged on gift cards because the issuing store or restaurant goes bankrupt.

The story doesn’t point out that $75 million is a tiny, tiny portion of what will be charged just on restaurant chains’ gift cards. The figure for all restaurants, never mind retailers, runs into the billions. The National Retail Federation has pegged the total for both channels at more than $26 billion. Such a small potential loss means only a tiny percentage of card-issuing restaurants are believed to be at risk. Yet the article—and possible the Tower research—fail to provide that context.

Instead, the story notes that consumers reportedly held $20 million in gift cards when Sharper Image went bankrupt. It also reports that Bombay Co. paid cardholders 25 cents for every dollar that was left on their cards when the retailer soaped over the plate glass windows of 388 stores in August.

Both that article and the Courant column appeared before “Taps” was sounded for Circuit City, the big-box electronic retailer that presumably sold a lot of gift cards.

Yeah, there’s a danger to buying cards. But the industry needs to remind consumers that it’s routine for one restaurant chain to honor the coupons of another, even when both are still in business. It may become even more of a convention if additional concepts flat-line. When Bennigan’s company-run restaurants went bust, Texas Roadhouse offered to provide a free entrée to consumers who had gift cards from the chain. The patrons presumably could’ve also used the cards at franchise establishments, which stayed open.

For six or seven years running, gift cards have been the restaurant-industry equivalent of finding a new sports car parked in the driveway on Christmas morning. It would be a shame to see that Maserati repo’d because consumers were frightened away from a holiday staple that giver, getter and seller all appreciate and value.

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1 Comments:

Anonymous Peter Romeo said...

Here's what George Gombossy said in an e-mail in response to some comments I e-mailed him earlier:

We had had a dozen restaurants close abruptly in central conn with hundreds of people stuck with worthless gift certificates, the way the economy is going i am willing to get that we will have at least 100 more closings.
My point is this, if the restaurant association does not do something to protect people who buy gift certificates, no customer should.
What is the point of buying a Morton's if the only on in central ct closes and the company goes into bankruptcy
George

November 12, 2008 at 9:02 AM  

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