Whitcoulls customers are being told to get in now and redeem their gift vouchers or face them becoming worthless if the company goes into receivership.
Customers with vouchers or gift cards have been told today they must buy the same value of goods with either cash or credit cards.
The national book chain, which includes Borders, put itself into involuntary administration last night in Australia and New Zealand.
Staff at two Whitcoulls stores contacted by nzherald.co.nz said vouchers and gift cards could only be accepted if the customer spent the same value on books or other goods.
For example, to redeem a $20 voucher, a customer would have to spend another $20 on books or other goods.
Consumer New Zealand deputy chief executive David Naulls said while the current policy put in place by the administrator was not ideal for customers, the "smart bet" would be to get in now and redeem the vouchers.
"If the business keeps trading in the future you might be able to redeem your vouchers in full, on the other hand if it goes into receivership or liquidation then you are classified as an unsecured creditor which does not see very much very often," he said.
"Probably the smartest thing is to take the offer that's going at the moment."
Naulls said the reality of the situation "is what is happening is probably quite legal".
Australian parent company REDgroup Retail, which manages Whitcoulls and Borders in both countries, called in voluntary administrators to the business.
John Bester says his wife bought a $50 voucher from Whitcoulls in Papakura yesterday.
When he saw the news about Whitcoulls going into administration, he went back to the store to ask how he could get his money back and was told he could redeem the voucher - but only if he spent a further $100.
"I said to them I think that is a little bit dishonest. That is extortion."
He believes the company should have stopped selling the vouchers yesterday if they weren't happy to redeem them.
See a description of voluntary administration here.
New Zealand staff were now asking what the administration would mean for them as they had not been told anything by their employers, National Distribution Union general secretary Robert Reid said.
"It takes a while to understand, as these things flow down, what impact they will have on each level. We are not happy with how this has been handled by the company.
"The company has been very obstructive in pay negotiations and instead of being open with us and their problems, they have been playing hard ball and acting like an anti-union company."
Reid told NZPA the next step would be to track down a representative of the administrators to find out what the move would mean for New Zealand staff.
Ferrier Hodgson partner Steve Sherman said that as far as possible it would be business as usual for the stores while his firm undertook an "urgent assessment" of the company's financial status.
Unlike receivership, the administrators' role is not to sell the business but to try to make it viable again.
Sherman said he would meet creditors - such as book publishers - probably in the first week of March.
The administrators will aim to set up repayment deals with the creditors to buy the company time to get back on its feet.
They will also make a call on whether customers can redeem store vouchers.
If the voluntary administration is unsuccessful, the company could be placed into receivership.
REDGroup is controlled by private equity group PEP.
The separate US-owned Borders chain also collapsed this week but is not linked to the Australasian chain.
New Zealand's Whitcoulls chain comprises of 65 stores, 40 of which are located in Auckland, Wellington and Christchurch, according to its website.
It was first established as Whitcombe and Tombs in 1888 and merged with Dunedin office supplies company Coulls Somerville Wilkie in 1971.
"This is just another tragedy, which reminds me very much of Feltex," Reid said. "It's an iconic New Zealand company being bought out by a private equity company, becoming completely indebted and this is the result that we see. It's tragic for the workers and the New Zealand company that has been built up over the years.
"There must be at least 1000 staff who will be affected by this. We are telling our members that we are working as hard as we can to find out what this means for them. Those on the distribution side at least are entitled to redundancy and other provisions," Reid said.
Booksellers New Zealand chief executive Lincoln Gould said there would be grave consequences, as Borders and Whitcoulls were an important part of the industry.
"We just hope they don't start closing doors - it would be an impact for publishers, consumers and it would be very sad. There are obviously hundreds of other bookshops, so it would not be a terminal problem for the book industry, but it would be of grave consequence," Gould told Radio New Zealand.
Pressure building on traditional book retailers worldwide
The move comes a day after the Borders chain in America collapsed. The two Borders businesses are not connected - they are owned by different corporations - but they have both encountered the same problems.
Both Whitcoulls and the New Zealand Borders chain have faced a tough trading environment in the past few years, with consumers placed under pressure by the recession and global financial crisis.
The growth in online book buying has also created challenges - strong NZ and Australian dollars have made it cheaper for people to buy online from overseas websites. Sites such as Amazon offer cut-price books and deals such as free postage.
REDgroup Retail last year reported a first-half profit after tax of $19.5 million, up from $10.7 million in the previous year.
It has been trying to restructure its business by investing in e-books, relaunching its Whitcoulls website and cutting costs.
But it has faced stiff competition from Paper Plus, which embarked on a $22 million plan in 2009 to increase its store numbers from just under 100 to 110 by Christmas.
In December, the Herald on Sunday reported that publishing companies had said they had received few, if any, book orders from Whitcoulls over the previous five weeks - normally the most profitable time of the year for booksellers.
129 YEARS IN THE BUSINESS OF BOOKS
Whitcoulls is one of New Zealand's oldest companies, and was one of the first to be registered under the Companies Act 1882.
It began in 1882 in Cashel St, Christchurch, as a partnership between bookseller George Whitcombe and printer George Tombs. Whitcombe and Tombs dominated publishing in NZ for decades and became the Southern Hemisphere's largest educational publisher.
In 1971, it merged with Dunedin office supplies company Coulls Somerville Wilkie.
It was renamed Whitcoulls in 1973 and shifted its focus to retailing.
The chain has had a string of high-profile owners over the past three decades, including Ron Brierley's Brierley Investments, Graeme Hart's Rank Group, Eric Watson's Blue Star Group, British bookseller WH Smith, and finally Australian private equity firm Pacific Equity Partners.
1991: Rank Group pays Brierley Investments $71 million for a majority stake in Whitcoulls, moving to a full buy-out in 1996. It also buys Australian chain Angus & Robertson.
1996: Blue Star pays $320 million for both chains.
2001: Both chains are bought by WH Smith for $126 million.
2004: PEP buys both chains for $135 million; adds Australian newsagency chain Supanews, plus 32 Borders stores in New Zealand, Australia and Singapore, as well as the Calendar Club chain, which sells calendars in malls over the Christmas period.
- NZPA WITH TAMSYN PARKER AND SUSIE NORDQVIST