Incentive - December 2008 - (Page 8) HEADLINES Circuit City Bankruptcy Roils Gift Cards The struggling electronics retailer makes clear it believes it must continue to honor gift cards if it hopes to successfully emerge from bankruptcy BY LEO JAKOBSON U nlike The Sharper Image, Circuit City would like to keep its loyal customer loyal as it reorganizes under bankruptcy protection. Therefore, the company said in its Nov. 10 filing, it needs to continue to honor gift cards, consumer rewards programs and other loyalty programs, as well as continue to accept returns and exchanges, if it is to succeed in returning the brand to profitability. The court agreed, and permission was given. But as the first high-profile bankruptcy by an incentive gift card supplier since the mortgage crisis hit, the industry’s eyes will be on the firm. Especially as virtually all economists say many more retailers and manufacturers will have to file for Chapter 11 protection before the financial situation improves. Still, George Delta, legal counsel to the Incentive Federation, recommends caution. “If I had a gift card from Circuit City, I would use it as quickly as Incentive possible,” he says, noting that gift card holders are unsecured creditors—last in line if the reorganization fails and the company liquidates. “It is incumbent upon companies [offering gift cards as incentives] to do due diligence.” Andrew Dodge, president of the Incentive Marketing Association’s Incentive Gift Card Council, also sounded a cautious note: “You don’t have to look far to see how many retailers have closed a large number of locations, or have completely gone out of business,” says Dodge, senior manager, national accounts, for L.L. Bean Direct to Business. “That is why it’s critically important that incentive marketers exercise due diligence with any product supplier, and look very carefully at the potential gift card options on behalf of their clients.” At present, customers aren’t worried, says Eric Mosley, CEO of Southborough, Mass.–based Globoforce, a specialist in international incentive programs using gift certificates as rewards. “It’s now pretty standard to get court permission to honor gift cards. The backlash against Sharper Image was so strong,” he adds, any retailer entering bankruptcy will include continued acceptance of gift cards in their “firstday motions”—the rulings that allow a company reorganizing under Chapter 11 to continue funding day-to-day operations. Which Circuit City did. And, in fact, Circuit City reiterated to Incentive that it is open for business as usual in the incentive gift card market. From Globoforce’s point of view, gift card bankruptcies don’t provide a huge risk. “If an incentive program is built on one gift card, all your eggs are in one basket,” Mosley says. “A normal gift card program is based on hundreds of choices.” From Mosley’s perspective, the principal issue Circuit City’s bankruptcy highlights is the importance in a recession of engaging the workforce. “A workforce in recession can suffer intense swings in morale,” he says, pointing to fear and anger as common emotions among layoff survivors—especially when layoffs are widespread enough that more may be coming. “Now is the time to double down and invest in your people on the ground,” he says. “We have one customer that went through significant layoffs last year. Productivity and engagement of the employees who were left was in tatters.” By investing in an engagement program, Mosley adds, the client “was able to put them back to pre-layoff productivity.” 8| | December 2008 | incentivemag.com http://www.incentivemag.com
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