Use Those Gift Cards

[Kevy Baby]

Originally Posted by Cadaverous Pallor

Is it really true that they have a bank account full of the cash used to purchase gift cards and they can't touch it?? I don't believe that...

I don't pretend to understand all of the subtleties of it, but basically it is an accounting thing.

[Alex]

Yes, they can spend the money they get from gift card. However, as mentioned above, the revenue from gift cards is considered to be an unsecured loan to the company (from the individual consumer) until such time as they are redeemd.

There are reasons that this is good for the company (if there weren't, they wouldn't promote them and probably wouldn't have them).

But, they are debt and appear in the books as debt. And when you're financially on the edge that creates many problems. Imagine trying to find funding and saying "we're really on the edge of bankruptcy here, help us out and you'll get a big piece of the pie when we're good again. By the way, we took out a $120 million loan from our customers and we've already spent that money, which is why we're asking for money from you and that means in the next year you can expect us to give away $90 million in merchandise to repay those loans while we're also trying to make the profit that will justify you investing in us."

And it is bad for the consumer because the debt it unsecured which means if they do go into bankruptcy your mini-loan goes straight to the bottom of the pile when the bankruptcy judge is trying to settle the company's assets.