Following in the footsteps of Bed Bath & Beyond, discount home decor retailer Tuesday Morning announced it would be ceasing operations and closing all of its locations. While the exact date of store closures has yet to be determined, the impact on holders of Tuesday Morning gift cards will be immediate. Tuesday Morning’s website provides full details on the closure of its stores and immediate changes at their retail locations. Gift cards and merchandise return cards will be honored through May 13.
The recent news highlights the twofold issue of utilization of prepaid gift cards. While my recent Javelin Strategy & Research report on unused funds highlights that most consumers use gift cards within a month of receiving the card and generally in a single shopping trip, a significant percentage of consumers will have excess balances after 12 months, even if it is just a small percentage of the initial card value. In addition, the hidden gift cards—in the form of merchandise credits—can often add up and become a secondary thought in use of payments.
For consumers, laws around bankruptcies govern the order of who gets repayment. The Absolute Priority Rule determines the order of payments, with secured creditors getting priority for full payment. The remaining money then cascades down the hierarchy, moving through secured claims in order of issue and then to unsecured creditors before any equity holders can be paid out if funds remain. This is highlighted in an explanation from the O’Bryan Law Offices:
“Under the Absolute Priority Rule, the claims towards the bottom of the aforementioned hierarchy should not receive any money from the debtor until the claims towards the top received full recovery. Based on this process, the claims at the bottom often receive little to no money. This hierarchy is a ‘fair and equitable’ treatment plan for creditors according to the U.S. Bankruptcy Code.”
Moving forward, other potential bankruptcies and liquidations could be imminent, with recent news on David’s Bridal, Party City, and others. Consumers frequenting these retailers should be on alert to spend remaining gift and merchandise credit balances quickly to ensure maximization of their funds. Gift card vendors, incentive management organizations, and others must also carefully consider which retailers to spotlight and offer to ensure that their customers have a vibrant choice of options with limited ongoing risk to the intended final card recipient.
The vast majority of gift card use will continue to be unaffected by the current slate of potential liquidations and consumers can feel confident in utilization of any gift cards they hold. In general, the retailers currently struggling with bankruptcy or closures have much less utilization of gift cards compared to larger and more stable retailers. As an example, Tuesday Morning reported just $1 million in accrued remaining gift card liability in their fiscal year 2021 annual report. As a counter to that, Target reported in excess of $1.2 billion in upstanding liabilities in both fiscal 2021 and 2022, indicating a much larger use and remaining balance of gift cards.
Javelin Strategy & Research supports this usage with consumers preferring large scale mass merchandisers such as Target or Walmart, as well as large online retailers such as Amazon or eBay. In addition, the research indicates other popular gift card usage occurs with food and beverage retailers such as Starbucks, McDonalds or Chick-Fil-A—which have more recurring gift card use and also lower card values in relation to the lower price points.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Javelin Strategy and Research.
