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Returns or rip-offs? A fine line for retailers

Consumer Reports recently unveiled a "naughty or nice" list that rates retailers on how they treat shoppers this holiday season, including the sticky issue of merchandise returns.

L.L. Bean,, Costco and Walmart were deemed "nice" for their no-hassle returns. Walmart, however, requires a manager's approval for more than three returns in 45 days.

High on the "naughty" list is CompUSA for "unusually punitive" restocking fees of "up to 25 percent" of the item's cost if the return doesn't conform to its criteria. The magazine notes that CompUSA, now part of, doesn't spell out just which products are subject to the fee.

"Retailers must walk a fine line between providing great customer service and protecting themselves from that one-half of 1 percent of people who are out to rip you off," said Al Meyers, a Dallas-based vice president of Kantar Retail, a consultant. "If your return policy is more lenient than your competitors, it can be a compelling advantage."

Although return abuse and fraud have declined in recent years, the National Retail Federation says slightly more than 10 percent of 111 retail companies surveyed in October reported tightening return policies while 5 percent were loosening them. The rest kept the old rules.

In all, the federation estimates that sketchy returns cost U.S. stores -- excluding supermarkets -- about $14 billion in 2010, amounting to 8 percent of such transactions.

Meyers says the benchmark for a generous, customer-oriented return policy has been set by Nordstrom.

Technology has helped by letting stores keep track of receiptless purchases by swiping a customer's credit card, then pulling up a history of transactions.

Retailers, on the other hand, must protect themselves from unscrupulous people who will buy a big-screen TV for the Super Bowl, then return it afterward, said Derek Rodner of Agilence, a technology firm that sells retailers a system aimed at internal fraud. Same thing for expensive dresses worn once, then returned after an event, he said. It got so bad during the San Francisco Symphony's annual Black and White Ball that Bloomingdale's affixed a long ribbon to the back of gowns and wouldn't take any back if the marker had been detached.

A consumer news website,, gave Macy's an A rating for a "generous and flexible" policy that allowed customers to return goods within 180 days of purchase.

But a spokeswoman clarified that the policy excludes jewelry (return within 30 days) and mattresses (depending on manufacturer).

By comparison, Dillard's has a simplified policy, but it's limited to a 30-day window. Target's is 90 days, and Kohl's says it simply has no time limit.

Neiman Marcus has a more complicated approach. Used merchandise that is defective can be returned with no cited deadline. Otherwise, items must be unused, unwashed and brought back within 60 days for a full credit. An unspecified restocking fee may apply. After 60 days, there's a sliding scale for refunds: 75 percent of purchase price if returned after 60 to 120 days; 50 percent if within 121-180 days; and no credit beyond that. Gift cards will be issued for returned gifts.

Two business school professors say they've proved that a lenient return policy generates future profits for the merchant.

V. Kumar of Robinson College of Business at Atlanta's Georgia State University and J. Andrew Petersen of the University of North Carolina at Chapel Hill compared buyer behavior the year before and after an online shoe retailer eased its return policy. The average dollar value of purchases increased both years, the professors found, but under the lenient policy, purchases and referrals more than offset product returns.

Their article in MIT Sloan Management Review this spring cautioned chains against treating returns as a "bitter pill," arguing that they should be viewed as a tool to enhance future sales.

Even a retail expert like Meyers can have mixed experiences.

He and his wife tried to return a shirt that had been given as a gift. The retailer, which Meyers won't name because it's a client of his firm, refused to take it back even though it bore the store's label. The barcode, which identifies the item, did not match anything in its computerized inventory.

As a result, Meyers said, "my wife will never go back."

On the other hand, Kohl's accepted a faulty but receiptless kitchen appliance without an argument. Moreover, the store valued it at the price charged when Meyers said it was bought. If there is no receipt, at some merchants the amount refunded or credited would be the year's lowest sales price.

"I applied the credit to a more expensive model," the career retail consultant added.

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