Gift Cards and Counter Party Risk

Reading time: 3 – 5 minutes

Gift cards are a common gift during the holiday season.  Usually stores exchange at a 1:1 ratio.  Counter-party risk requires the financial ability to the counter-party to perform the contract.  Why anyone buys gift cards surprises me.  Exchanging one asset for a less safe and less liquid and not requiring a risk premium seems awfully stupid.  Gift cards function like an unsecured non-interest bearing loan to the retailer (counter-party).  At least charge for the counter-party risk.  What a deal for the retailer!

Many of these retail institutions are in or near bankruptcy.  As the credit contraction continues and economic activity continues grinding to a halt many more victims will be claimed and many retail corpses will litter the malls throughout the nation.  If a company knows they are near failing and still issue gift cards I question the integrity of their management and the applicability of fraudulent conveyance statutes.  Anyway, here is a list of retailers, with some preliminary research but not completely verified information, which may prove unreliable counter-parties:

• Circuit City filed Chapter 11 November 10, 2008
• Ann Taylor 117 stores nationwide closing
• Lane Bryant, Fashion Bug, and Catherine’s to close 150 stores nationwide
• Eddie Bauer to close stores 27 stores and more after January
• Cache will close some stores
• Talbots closing down specialty stores
• J. Jill closing stores
• Pacific Sunwear closing stores
• GAP closing 85 stores
• Footlocker closing 140 stores more to close after January
• Wickes Furniture closing down
• Levitz closing down remaining stores
• Bombay closing remaining stores
• Zales closing down 82 stores and 105 after January
• Whitehall closing some stores
• Piercing Pagoda closing some or all stores
• Disney closing 98 stores and will close more after January.
• Home Depot closing 15 stores
• Macys to close 9 stores after January
• Linens and Things closing some stores (Update:  Linens-N-Things has filed bankruptcy)
• Movie Galley Closing some stores
• Pep Boys Closing 33 stores
• JC Penney closing a number of stores after January
• Ethan Allen closing down 12 stores.
• Wilson Leather closing down some stores
• Sharper Image closing down some stores
• K B Toys closing 356 stores (Updated:  KB Toys filed for bankruptcy December 11, 2008)
• Loews to close down some stores
• Dillard’s to close some stores

Additionally, keep in mind that any purchases made are also subject to counter-party risk should the product be defective, tortuous, have a warranty, etc.  During this deflationary credit contraction individuals should be decreasing the risk and increasing the liquidity of their assets.  They should avoid counter-party risk with retailer gift cards, unsound banks and fiat currency.  There are alternatives, like GoldMoney, to the current monetary system. Happy holidays.  Please add any other risky counter-party retailers to the comments.

Additionally, big change is coming to America.

PRODUCT REVIEW SITES:

There are some product review sites including About Cellular, Geek Cellular, Geek Purses, Watches Head, Jewels File, Hats Avenue.

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4. Silver Lease Rates
5. Gold Party Intermission Nearly Over

Tagged as: ann taylor, bombay, cache, catherine's, circuit city, Counter Party Risk, dillard's, disney, eddie bauer, ethan allen, fashion bug, footlocker, gap, gift cards, home depot, j. jill, jc penny, k b toys, lane bryant, levitz, linens and things, loews, macy's, movie gallery, pacific sunwear, pep boys, piercing pagoda, sharper image, talbots, whitehall, wickes furniture, wilson leather, zales

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