Dina Katgara
(Bloomberg) — American Express card holders and other shoppers are hurrying to spend store credits and gift cards at Saks Fifth Avenue as the cash-strapped retailer heads toward a potential bankruptcy restructuring.
When a company files for bankruptcy, it’s not automatically required to honor gift cards, sometimes leaving consumers empty-handed.
That’s worrying for customers such as Julia Portela, a 38-year-old travel content creator in Miami. Her American Express Co. Platinum card has an annual fee of $895 and includes getting a $50 credit at Saks twice a year.
“Everyone is going to try to go to Saks,” Portela said. “We don’t know what can happen.”
American Express has millions of cardholders, but doesn’t disclose how many have the Platinum version. The Saks benefit currently remains unchanged, American Express said in a statement.
A representative for Saks Global Enterprises, which owns the retailer, didn’t respond to requests for comment.
Portela, who also has Saks gift cards totaling $300, runs a WhatsApp chat for travel tips with over 100 people, many of whom are anxious about the bankruptcy news. She also received a flood of messages from travel influencers she follows advising her to cash out Saks gift cards now.
‘Feeling the Drain’
“That rush is an old one; it hearkens back to the run on the bank,” said Edward Morrison, a Columbia University law professor and bankruptcy expert. “Saks is potentially feeling the drain on its resources as the goods are coming out now via the gift cards.”
Saks has incentives to protect its brand and honor the gift cards and credits, according to Morrison. The retailer can try to favor customers in bankruptcy court, but ultimately the courts have the power to decide if a company has to honor gift cards after filing for Chapter 11 bankruptcy, a proceeding in which a firm tries to restructure its debt to stay in business.
“There’s a high probability that Saks will honor these things in bankruptcy,” Morrison said. But “given the uncertainty, it’s rational for customers to use those cards now.”
Previous retail bankruptcies show varying approaches. Craft store chain Joann Inc. last year stopped accepting gift cards online, refunds and returns after two weeks from the court approval. In 2008, Sharper Image said that shoppers must spend their entire balance in one visit and the purchase must be double the card value.
–With assistance from Paige Smith.