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Fortunoff Bankruptcy Wipes Out Gift Cards

Little to no warning for New York-area shoppers

By Jon Hood
ConsumerAffairs.com

February 24, 2009

A weak holiday sale season, along with lingering issues from a separate bankruptcy filing last year, forced the once-mighty jewelry and home goods chain to file for bankruptcy protection earlier this month. As it prepares to liquidate, the company has announced that it will no longer honor customers’ gift cards, leaving those who have yet to use their holiday presents out in the cold.

Fortunoff originally planned to stop honoring gift cards on Feb. 5, the day it sought protection from creditors. However, due to a “miscommunication” with stores, the retailer extended the cutoff date to Feb. 17. Lori Rhodes, a spokeswoman for Fortunoff’s parent company, NRDC, told Bloomberg News that the corporation is negotiating with creditors to find a way to honor the cards.

In any event, customers aren’t happy. Given the high price of most Fortunoff items, many consumers had cards totaling hundreds of dollars. Shoppers are also stung by the chain’s failure to warn them of the impending cutoff, especially since many were Fortunoff regulars for decades.

Grace of Staten Island describes a typical experience: “I still had $1,000 left in gift cards but the sales person told me that I still had time before they closed because their court date was not [until Feb. 22]. I returned on Friday to use the rest of my gift card and I got the surprise that they were no longer accepting them. I was sick to hear that because nobody ever warned me.”

In addition to alienating longtime customers, Fortunoff’s also managed to taint a few otherwise happy nuptials.

Nicole of Verona, NJ told ConsumerAffairs.com she received a $125 gift card “given to me by my family member as a gift for my wedding. It [saddens] me to think that beautiful day is tainted due to Fortunoff’s.” Similarly, S of Milford, CT writes, “My husband and I are left with over $200 in gift cards from our wedding. Gift cards should be honored if they were purchased prior to the filing of bankruptcy.”

While the loss of a gift card, even a high-priced one, might seem trivial to some, every loss hurts consumers as the economy continues to circle the drain. As Donna of North Caldwell, NJ, put it, “I am out about $350. It was a gift for my birthday. Now nothing. In light of all the other disastrous news this really, really hurts.”

Ultimately, bankruptcy law allows a corporation which files for bankruptcy protection to stop honoring gift cards. The situation may become more commonplace as the troubled economy threatens to drive more chains out of business. When electronics specialist The Sharper Image went under last year, it too refused to honor gift cards. After widespread public outrage, the retailer relented and agreed to accept the cards, but only if consumers spent at least twice their value.

It's just the latest piece of bad news for NRDC, the private equity firm that acquired Fortunoff in February 2008, essentially saving the 85-year-old chain after its first bankruptcy filing. At the time, NRDC announced plans to spend $100 million in an effort to restore Fortunoff’s status as a retail leader. Unfortunately, NRDC struggled to revive the chain as bad economic news rolled in throughout 2008.

If things weren’t bad enough, two years earlier the firm acquired home goods chain Linens ‘n Things, which has also since gone bankrupt. Analysts say that NRDC’s poor track record doesn’t bode well for the other chains it controls, including Lord & Taylor, another longtime retailer.

At least one independent gift card vendor is weighing its responsibility to consumers. GiftCertificates.com, a website that offers gift cards from over 200 retailers, will reportedly consider independent relief for consumers if Fortunoff decides not to honor the cards.

In bankruptcy court, meanwhile, a group of six liquidators won an yesterday entitling them to run the liquidation process, which could start later this week.

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