As consumers seek bargains on gifts instead, gift card sales are expected to decline this year by 5.6 percent, according to the National Retail Federation.
Besides tightening their budgets, shoppers are increasingly aware that tough economic times could lead to more retail bankruptcies.
Among the stores that have filed bankruptcy this year - Sharper Image, Circuit City and Linens 'N Things.
Earlier this year, consumers with Sharper Image gift cards were informed that they could no longer use them when the retailer filed for bankruptcy. At that time, an estimated $20 million remained unused on Sharper Image gift cards, and even more on related promotional cards.
Bankruptcy courts treat unused gift card funds as debt and determine whether the retailer must pay it, but it's up to the retailer to petition the court to allow it to continue to accept its gift cards.
If the retailer doesn't make such a request or if the court denies it, customers are left with one, often-unsatisfactory option: to file a claim, as an unsecured creditor, with the pertinent bankruptcy court.
Sharper Image later petitioned the court to allow it to accept their own gift cards if consumers spent twice the value of the gift card on a single transaction.
Consumers should pay attention to retailers’ fiscal health before purchasing gift cards. Even if a bankrupt retailer honors its outstanding gift cards, it may be for picked-over merchandise, with fewer outlets or for a fraction of the value.