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Fortunoff Liquidators Agree to Honor Gift Cards

$8.5 million in gift cards, credit slips at stake

February 25, 2009

It is estimated that there are approximately $8.5 million worth of unused gift cards and credit slips currently in circulation.

Earlier this month, Fortunoff stopped accepting gift cards even though the stores remained open. After a flood of complaints, Cuomo urged the company, and any liquidation company that takes over the stores’ going-out-of-business sales, to honor customer gift cards.

“An unfortunate side-effect of this ailing economy is the number of stores we’ve seen abruptly forced to close their doors in the face of bankruptcy,” said Attorney General Cuomo. “When this happens, however, it should not be at the expense of consumers, who are already over-stretching their budgets to make ends meet. Fortunoff’s liquidator is doing the right thing here, which we hope will serve as an industry example.”

Cuomo urged consumers with Fortunoff gift cards to use them before the March 8 deadline. While all purchases made during the going-out-of-business sale are final, the liquidators will also honor Fortunoff’s return and exchange policy through March 10 for items purchased before February 25.

Fortunoff’s going-out-of-business sale will be operated by a group of liquidating companies that will bring in additional goods, including jewelry, to sell alongside Fortunoff’s existing inventory.

Consumers should check item tags to determine whether the items were brought in by the liquidator or were part of Fortunoff’s inventory, as clear identification of all liquidator-added merchandise is required. Additionally, consumers should do product and brand research and price comparison before making purchases.

Liquidation tips

In light of the current economic crisis, the Attorney General’s Office provides the following tips about going-out-of-business sales:

• Most going-out-of-business sales are operated by liquidation companies that bring in outside goods to sell along with the store’s existing stock. It is difficult to know if “discounts” on these outside goods provide real savings, since the products were never offered in the stores at the listed “regular” price.

• Discounts offered at the beginning of going-out-of-business sales may be smaller than discounts offered immediately prior to the liquidation sale or discounts offered by competing retailers. Consumers should comparison shop to see if they are indeed getting a good deal.

• Purchases made during going-out-of-business sales are final. Consumers may want to choose products that come with a manufacturer’s warranty that offers protection against defects and damages. In addition, consumers should also pay by credit card, as many credit card companies offer consumer protections for refunds for defective or damaged products.

• Consumers should research the products and their prices from other retailers ahead of time to see if they are indeed getting a good deal.

• While it may be tempting to wait for the end of a liquidation sale when discounts are greater, often consumers who do so are disappointed by empty shelves. Consumers with gift cards should not wait to use them.

As increasing numbers of retailers shut their doors, more consumers will be holding unusable gift cards. While some stores continue to honor gift cards even after filing for bankruptcy, others, like Fortunoff, stop accepting gift cards or lack the funds or merchandise to honor them.

When stores stop accepting gift cards or shut down altogether, consumers may only be able to receive reimbursement for the value of their unused gift cards if they file a Proof of Claim in the retailer’s bankruptcy proceeding.

In bankruptcy proceedings, gift card holders are considered “unsecured creditors” and must stand in line behind secured creditors. By filing a Proof of Claim, gift card holders do have what is referred to as a “priority claim” and may be able to receive reimbursement for the value of their cards.

While such recoveries are more likely to happen in Chapter 11 reorganization, consumers' chances of receiving value are significantly diminished if there is a liquidation.

Consumers angry

Besides complaining to Cuomo's office, many New York-area consumers let ConsumerAffairs.com have an earful.

“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]," said Grace of Staten Island. "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.”

NRDC

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.

GiftCertificates.com, a website that offers gift cards from over 200 retailers, had earlier said it would consider independent relief for consumers if Fortunoff decides not to honor the cards.

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