Tuesday, March 4, 2008

Gift Cards and DJs

This morning, the male half of the none-too-bright morning show pair that I am embarrassed to listen to while getting ready for work mentioned that The Sharper Image was no longer going to honor the gift cards that it had issued. It was completely unethical, he bloviated, just another example of big corporations screwing the little man. As usual when he expresses an opinion about something other than radio, his information was both misleading and incomplete.

The Sharper Image has indeed suspended redemption of the gift cards that it has issued. It has done so because it has filed for bankruptcy. This makes perfect sense. When a shopper purchases a gift card, it doesn't really represent revenue that a retailer can immediately book as income. Because the gift card is redeemable for goods and services, it really is a liability. That is, the company that issues the gift card has to produce something of value in exchange for the gift card at some future date. Money paid for a gift card isn't income for a company. It's a loan to the company. Redeeming the gift card represents paying off a debt to the card's holder. When a company files for bankruptcy, it is saying that it can no longer pay its outstanding debts; and it no longer has the ability to decide to pay some its debts but not all. That's a matter under the control of the bankruptcy court. In other words, The Sharper Image couldn't have redeemed those gift cards even if they had wanted to. Now, if The Sharper Image had continued to sell gift cards knowing that they were about to file for bankruptcy, that would have been unethical. But there is no evidence that they did so. So, idiot radio DJ, why don't you spend 5 minutes finding out what is really going on before you accuse someone of unethical conduct? Is that too much to ask?

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