According to an item in Retail Information Systems News, more than 6,000 retail stores will close by the end of 2008. The closures cover a broad spectrum of the retail industry, and include both well-known and regional retailers.
84 Lumber, Ann Taylor, Charming Shoppes (owner of Lane Bryant and Fashion Bug), Circuit City, Foot Locker, Macy's, Movie Gallery, Pacific Sunwear, Pep Boys, Sprint Nextel, Wilsons Leather, and Zales plan a combined total of 1330 store closures. Other retailers like JC Penney and Office Depot have significantly scaled back expansion plans due to the soft economy.
Amid store closures, consumers will have to navigate which of these retailers have filed for Chapter 11 bankruptcy protection. The distinction is important, especially for consumers who have purchased goods that have not been delivered, or services that have not yet been rendered. These consumers face a real risk of loss, if a company's Chapter 11 bankruptcy (reorganization) turns into a Chapter 7 bankruptcy (liquidation).
A consumer's best bet is to pay for goods with a credit card. The dispute process associated with credit card purchases may enable the consumer to reclaim the purchase price through a chargeback. Extended warranty services, installation and setup services, gift cards or gift certificates, and goods paid for with cash are less likely to be recoverable. When a retailer declares bankruptcy, cash-on-hand is used to pay secured creditors and the employee payroll first. These obligations must be met first under the rules of the bankruptcy court. When a retailer is running short of cash, those consumers who purchased pre-paid services or ordered goods for delivery are most likely out of luck.
As a rule, consumers should purchase gifts with a credit card to maximize their ability to collect if the retailer goes belly-up. If you had been hoping to pay cash for the holidays this year, use a credit card to provide some extra protection, and then make a cash payment to your credit card immediately in the amount of the purchases you made.
If that doesn't work for you, limit your purchases to goods only. Skip the extended warranties, setup and installation services, and replacement insurance offers. Consider buying directly from the manufacturer if that's an option.
Don't assume that chargeback protection is available with a Visa or MasterCard gift card in the same way it's available for purchases. Ask the bank or credit union that issues the card for specifics on chargeback protections before you buy the gift card.
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