Although we are less than three months into the year, it seems that 2017 is trending to be the year of the retail bankruptcy. Since the beginning of the year, The Limited, Wet Seal, Easte Mountain Sports and Bob’s Stores all have filed Chapter 11 petitions, and signs indicate more well-known retailers likely will follow suit. See The Limited Stores, Case No. 17-10124 (Bankr. D. Del.); The Wet Seal, Case No. 17-10229 (Bankr. D. Del.); In re E. Outfitters,Case No. 17-10243 (Bankr. D. Del.). Each bankruptcy case no doubt has its own unique set of facts. Several themes, however, recur in retail bankruptcies that are important to revisit given the filing trend. Specifically, this article highlights issues relating to gift cards, consignment arrangements and “going out of business” sales, which often arise during a retail bankruptcy case.
Gift Cards
When a well-known retailer files for bankruptcy, there are frequently significant liabilities outstanding with respect to unredeemed gift cards that were purchased prior to the petition date. For example, two weeks before RadioShack’s bankruptcy filings, approximately $44 million in unused gift cards was outstanding. See In re RadioShack Corp., Case No. 15-10197 (Bankr. D. Del. Feb. 5, 2015), Docket No. 7. Similarly, on the petition date of American Apparel’s first bankruptcy case, the company estimated an outstanding gift card balance of approximately $5.1 million. See In re Am. Apparel, Case No. 15-12055 (Bankr. D. Del. Oct. 5, 2015) Docket No. 10.
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