The dining chain is liable for almost US$50mil in unused gift cards and gift certificates. — Bloomberg
NEW YORK: TGI Friday’s Inc’s recent bankruptcy could bring in a wave of customers who haven’t been to one of its restaurants in years, but have kept a gift card tucked away in a junk drawer or an old birthday card.
The dining chain, which filed for Chapter 11 protection on Saturday, is liable for almost US$50mil in unused gift cards and gift certificates, a hefty sum for a cash-strapped business trying to sell itself in bankruptcy.
But, who will foot the bill for any potential surge of gift card redemption has been a source of anxiety for some TGI Friday’s franchisees.
TGI Friday’s is responsible for reimbursing a franchisee when a gift card is used at their restaurant.
Now that the chain is bankrupt, franchisees want to make sure those payments will keep coming if patrons flood their locations to finally cash in gift cards, which never expire, for burgers and drinks.
Though its unlikely the full US$50mil will ever be redeemed, the potential liability is so large because the vouchers are valid for forever.
In court documents, TGI Friday’s said that amount includes gift cards dating back to 2003.
“I did a double take on that,” Judge Stacey Jernigan said during TGI Friday’s first bankruptcy hearing on Monday.
“I was imagining, you know, grandparents who got gift cards for their kids in college and then it got thrown away.”
TGI Friday’s has said it will continue to honour its gift cards in bankruptcy, describing them as an important way to boost sales and claiming the coupons are responsible for about US$132,000 in revenue in an average week.
Franchisees support gift cards for the same reason, they drive sales, but some are worried they could be “left holding the bag” if appropriate budgeting for reimbursements isn’t done, Jason Binford, a lawyer representing the Independent Franchisee Association Inc, said at the hearing.
Franchisees’ want to ensure there is a source of funds available to reimburse them in the event there’s a “run on gift cards,” Binford said.
Customers tend to flock to stores to redeem their gift cards when they hear that a retail chain has filed bankruptcy, he said, adding it is “probably likely to occur in this case”.
Binford, who said he represents the interests of more than half of the roughly 120 TGI Friday’s franchised US locations, said it should be relatively easy for TGI Friday’s to solve the potential problem in the coming weeks.
The nearly US$50mil in unused gift cards “dwarfs” the roughly US$6mil in new money TGI Friday’s has lined up to help finance the business in Chapter 11, he said.
TGI Friday’s lawyers didn’t respond to concerns raised by Binford during Monday’s hearing. However, the company won court approval to continue honouring gift cards during its bankruptcy.
TGI Friday’s has said it will continue serving customers and operating normally during its Chapter 11 and won approval on Monday to start tapping its bankruptcy financing.
The chain, which opened its first restaurant in 1965, has already closed some locations and said its US sales have declined by about 15% over the past year as its struggled with rising costs and a shift in consumer preference for faster, limited-service dining options. — Bloomberg
