Consumer Confidence

Many Happy Returns




''Do you have your receipt?''
Return policies have come a long way.

The web retailer Zappos gives you 365 days to return or exchange any item it sells, and applies no additional shipping or restocking fees when you do so. LL Bean allows you to return or exchange any item “at any time” if you are no longer 100 per cent satisfied with it, and it applies only a $6.50 shipping fee for this privilege. Under such generous, flexible, friction-fee terms, when shipping and restocking fees are eliminated, when return labels are provided beforehand, when receipts aren’t necessarily required for verification, every product a retailer offers essentially becomes a gift card that can be used to purchase any other product in its line.

In theory, of course, a gift card says, “I understand your virtues are so rich and complex, your tastes so refined, that only you yourself can be entrusted to choose a gift that adequately embodies your splendor.”

But actual gift cards aren’t particularly festive. Under the cozy splendor of a picture-perfect Fraser fir, who wants to amass a pile of tiny plastic rectangles? Today’s extremely liberal return policies solve this problem. At Zappos you can get a gift card with 4 ½ heels, crystal accents, and a designer pedigree. At LL Bean, you can get a closely fitted gift card in a rugged wool blend that will offer its recipient years of warmth and comfort as he ponders how to ultimately redeem it.

Just as the Internet didn’t invent music piracy, kitten porn, and populist rage, it didn’t invent full refunds on suspiciously rumpled dresses either. “A liberal customer return policy has been the backbone of the department store business,” declared retailing pioneer B. Earl Puckett in a 1931 issue of the New York Times.

But if we can’t fully credit the Internet for the creation of extremely liberal policies, we can at least credit it for making them ubiquitous. In the days when even major centers of commerce like Chicago or Los Angeles had only the meager investigative powers of two or three daily papers to shed light on the nuts and bolts of democracy, like shopping, retailers could operate with a fair degree of opaqueness. You might be familiar with the return policies of one or two places you shopped, but in general they were discreet, underpublicized phenomenons. Now, they’re like contestants in a TV dance contest – exposed to millions, scrutinized and assessed, pitted against each other. The most lenient, flexible, and forgiving becomes the standard against which all others must compete.

Lands End offers a similar deal as LL Bean: “If you're not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” Macy’s gives you up to 180 days to return some items. At Wal-mart, you don’t even need a receipt to get a cash refund in some instances. With Kohl’s, it’s the same -- unless it’s a gift card you’ve purchased. They don’t offer returns on those.

All in all, it has never been a better time to be a retail grifter. According to the National Retail Federation, shoplifted items returned for full refunds, price-tag switching, and other varieties of return fraud may cost the nation’s retailers as much as $3.7 billion dollars this year, up from $2.74 billion in 2009. With return policies so lax, it’s hard not to succumb to temptation on occasion. If you’re the timid, conscientious, relatively law-abiding kind of thief, maybe you “borrow” some new shoes for your kids to wear to your sister’s wedding (always taking care, of course, to cover their soles with masking tape to ensure the smoothest possible return process). If you’re a little less honest, maybe you buy a new-with-tags sweater on Ebay for $5, then return it to its store of origin for full credit. Or obtain a pricey big-screen TV from Costco, lease it to a customer of your home electronics rental business for 24 months, then return it to Costco for a full refund when the customer’s lease expires.

Thanks to such tactics, Costco and many other retailers have tightened their return policies in recent years. Even so, what’s more surprising than how many people see liberal return policies as a chance to obtain zero-cost electronics upgrades is how many people don’t. According to National Retail Federation estimates, just 7 % of all 2010 returns are fraudulent. And in general, we don’t return items – legitimately or otherwise – all that often. According to Business Week, “shoppers, on average, return about 6 % of everything they buy.”

While Facebook-era America is often characterized as an indulgent, entitled realm populated by narcissists, shopaholics, and impossible-to-please divas who consider the entire world set dressing for their own private reality show, when it comes to product returns, at least, we’re not much different than our midcentury predecessors. In 1950, a survey of ten department stores conducted by NYU’s School of Retailing found that returns constituted around 8 per cent of sales. In 1955, the New York Times reported that returns equalled about “10 per cent or less” of sales at local and specialty stores.

Although today’s more flexible return policies don’t appear to have had much impact on how frequently consumers return goods, there is one notable difference between the contemporary retail world and that of the 1950s. Today, a vast “reverse logistics” industry exists to manage the return process, refurbish defective e-book readers, harvest parts from rejected food choppers and transplant them into new kitchen appliances, and ultimately give every jilted sweater another shot in the marketplace. All those dollar stores and Ebay power-sellers have to get their new-without-tags merchandise from somewhere.

Supplying the lower echelons of global capitalism with salable product is hardly the biggest benefit of liberal return policies, however. As B. Earl Puckett surely understood, the promise of a full refund with no questions asked is the retail equivalent of a stiff shot of vodka: It lowers inhibitions and makes shoppers less worried about the consequences of their actions. Instead of putting off purchasing decisions to research more options or debate if they really need another new TV, they pull the trigger.

In the Spring 2010 issue of MIT Sloan Management Review, business school professors J. Andrew Petersen and V. Kumar modeled data supplied by “a large national catalog retailer of apparel and accessories” and discovered that the company could attain maximum profitabilty with a relatively high return rate of 13 percent. At that rate, the company would theoretically make $92,000 in profit over six years from the 1572 customers whose purchasing data was included in the study. If their return rate was reduced to 1 per cent, however, the company would make only $64,000 in profit from them. That’s because, in the case of this company at least, customers who return more also purchase more. Disincentivize them by tightening return policies, and gross sales would decline faster than the costs associated with product returns, thus eroding profits.

In the current climate, a liberal return policy is even more potent than it was in B. Earl Puckett’s day. Think of how few chances we have now to erase errors in judgement, intemperate remarks, kneejerk gestures that result in embarrassment and calamity. In the early days of the PC revolution, our spreadsheets and word processors gave us a taste of time-traveling omnipotence – a touch of a button could undo wrongly entered data and poorly revised paragraphs. Then, with the advent of “reply all” buttons, Gawker, YouTube, and WikiLeaks, amongst others, technology turned on us.

Now, it doesn’t matter if you’re Charlie Sheen redecorating a hotel room with your fists or a diplomat stumped for a diplomatic way to call Silvio Berlusconi a politically impotent horndog– your rash moment or too-candid disclosure will be written on digital stone for eternity. In 2010, virtually every stupid or careless move we make becomes a matter of public record. There is no such verb as “undo” anymore.

Except, of course, in the realm of retail. At Zappos, LL Bean, and every other retailer with similarly lenient return policies, you can shop with complete recklessness, secure in the knowledge that no matter what foolish choices you make, you can magically reverse them. This Christmas season, and for all subsequent ones in our forseeable, overmediated future, this is the greatest gift retailers can give us -- the ability to make bad decisions without lasting consequence. Send a photo of your genitals to a workplace acquaintance, and an army of Taiwanese animators can turn your private exploits into global entertainment in mere hours. Try to add some flair to a family portrait, and you become the foundation for some web wiseguy’s budding media empire.

But order a Just Cavalli sleeveless tshirt in a fit of Jersey Shore-induced dementia, and you’ve got 180 days to make sure it never happened.• 10 December 2010




Greg Beato is a contributing editor at Reason magazine. Follow @GregBeato on Twitter.

Photograph from istockphoto.com.