Costco Holds to Member Friendly Return Policy

Discussion
Jan 08, 2007

By George Anderson

Costco, it is well documented, is not the typical retailer. While all claim to be focused on the customer, it is one retailer that demonstrates that commitment in clear and simple turns on a daily basis.

One such example is the warehouse club’s return policy. Costco guarantees all the products it sells and will accept returns from customers even if the item has been used for an extended period of time. Shoppers have the option of a refund or store credit when they bring product.

Of course, with such a broad guarantee there are bound to be people who will take advantage. A report on the Daily Tech web site relayed the story of one shopper who returned a digital camera after four years of use. After receiving a full refund, the same shopper proceeded to buy a new camera in the club.

While there are examples of club members using Costco’s return policy to the detriment of the retailer, those instances are called rare. An unidentified Costco associate told Daily Tech, “Sometimes we’ll get the odd return of a product that we haven’t carried for years. Customers are usually returning defective products and want a replacement. It’s not often that we get someone trying to get their money back for something that’s really old.”

The one area where Costco has found it has had to place a time limit on returns is personal computers. In 2002, the company instituted a six-month window for consumers to return defective items.

“We’ll take anything back without batting an eye, except for computers,” said an unidentified warehouse store manager. “We don’t really like seeing TVs that still work fine come back after a year, but we’ll accept something if it’s broken.”

Richard Galanti, vice president and chief financial officer of Costco, said there’s no reason to change the company’s policy. “For every customer that abuses that privilege, there are 99 other customers that go, ‘Wow.'”

Discussion Questions: Why do so many retailers, implicit in areas such as product returns, behave as if their customers are out to cheat them? Do return policies contribute to whatever sense of “loyalty” shoppers have for a particular store?

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26 Comments on "Costco Holds to Member Friendly Return Policy"

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dan miller
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dan miller
10 years 11 months ago
It’s all warm and fuzzy to talk about Costco’s wonderful return policies but let me give you an example of a return I took today. The customer was returning a sewing machine that was purchased Sept.9…it was bought for her as a gift and she didn’t like it. (Of course, no gift receipt.) When I mentioned the item was 4 months old, she told me she knew exactly what she wanted back in September. (Well, obviously not since she now was returning it because she didn’t like it.) Our basic policy is to return the item the way it was… Read more »
David Livingston
Guest
10 years 11 months ago
Keep in mind that Costco is members only. If a customer abused the return policy, all they have to do is cancel the customer’s membership. Costco, like any business, is not going to let cheating customers run roughshod over them. Other retailers do not have the option of preventing cheating customers from shopping at their stores. So they might have to be more strict. Costco charges a membership fee and caters to a higher class of consumer, so they have some safeguards in place. Retailers have to weigh the pros and cons of their return policies. It’s basic supply and… Read more »
Bill Bishop
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Bill Bishop
10 years 11 months ago
Returns policy is one area where it’s evident that our businesses are not truly consumer centric, and while that’s understandable today, it’s becoming less defensible in a fully connected world. The key here is that to build loyalty, a retailer needs to build trust, and this needs to be communicated back effectively to the shoppers. While we know that there will always be some abuse, the trick is to use all the tools that are available to balance the cost of abuse with the benefits of increased loyalty. This is likely to be an emerging best practice among successful retailers.
Art Williams
Guest
Art Williams
10 years 11 months ago

This is just another example of what a class act Costco is. They just “get it” when it comes to taking care of their customers and employees. I recall that Nordstrom is another retailer that has superior customer service and they happen to be from the same part of the country. Is there something in the water out there?

Dan Nelson
Guest
Dan Nelson
10 years 11 months ago

Costco’s liberal, no question sasked return policy is tied to their suppliers who understand that this is part of Costco’s business model and that suppliers will have to support returns Costco takes back if they want to continue being a supplier in the future.

Costco also caters to a higher-end consumer who is less likely to abuse returns and the reason why nearly all returns are appropriate.

I doubt Costo would continue to support their no questions asked return program if it had a strong impact on their bottom line….

Matt Werhner
Guest
Matt Werhner
10 years 11 months ago
I don’t believe favorable return policies are significant criteria for most consumers when they are choosing a retailer, rather poor return transactions on the part of a retailer will significantly damage any loyalty a customer may feel. Return policies such as Costco’s are rarely abused and offer an easy and comfortable product return transaction. On the flip side are retailers that mistreat customers during this transaction. Everyone has their own return stories and these are two funny and ridiculous examples of both sides from the Home Center Industry. 1) A few years ago I knew an employee [at a major… Read more »
Len Lewis
Guest
Len Lewis
10 years 11 months ago
If you’re selling bad merchandise, the most liberal return policy in the world isn’t going to help you. On the other hand, if you are constantly having confrontations with customers about every little item in order to discourage them — you’re screwed. People don’t need to shop your store to make another enemy. But stores have to watch out for serial returners. Some are just a pain in the neck and will return anything — good or bad. But this is also a big issue when it comes to organized retail theft — returning stolen goods for cash or store… Read more »
Doug Fleener
Guest
10 years 11 months ago

A retail mentor of mine once said to me, “You know, any retailer can make buying something a good experience for a customer, but it takes a great retailer to do the same with a return or an exchange.” Costco’s return policy proves to me that they walk the talk when it comes to being customer focused.

Robert Leppan
Guest
Robert Leppan
10 years 11 months ago
I believe that a generous return policy contributes very strongly to a retailer’s customer loyalty. Sure, there are folks that are going to abuse this benefit but as others have mentioned, club operators like Costco have the ability to cancel the membership of someone who is a chronic abuser or a cheat. If a retailer truly is customer-focused, this means allowing your shoppers to return just about anything, no questions asked. My wife and I are Costco devotees and while we don’t return very many things, knowing that we can return an item if it’s defective or just not what… Read more »
Robert Immel
Guest
Robert Immel
10 years 11 months ago
My “beef” with Costco is that they don’t make it easy if you only have 1 or 2 items. You are forced to stand in the same lines as those that have an entire basket of merchandise. I once went over to the Photo counter (which was not busy) and they told me they weren’t allowed to ring up non-photo items. At least at Sam’s club, if the other counters (even the membership desk) are not busy, they will check you out if you only have 1 or 2 items. This is an area in which Costco NEEDS to improve… Read more »
Al McClain
Guest
Al McClain
10 years 11 months ago
One reason for Costco’s edge in the returns area is that it is a “club” and shoppers are “members.” I don’t have stats to support this but it would seem obvious that members of a club are less likely to cheat the club than shoppers of a traditional store would be. The membership fee no doubt deters low-level thieves and paying a membership fee annually makes members feel that the store is partly theirs. Speaking from personal experience, it’s a heck of a lot easier to return/exchange even a computer at Costco than it is to do so at one… Read more »
Ian Percy
Guest
10 years 11 months ago
Costco is simply the best! We look for excuses to go there. Only downside is it’s just too easy to spend money there! Used to do that with Home Depot too but the increasing lack of service has cooled our enthusiasm. Richard Galanti and Costco have it exactly right when it comes to return policies. The ‘lack mentality’ of many retailers (retail is tough, you cant’ make a living at it, Wal-Mart is evil, and other whines) includes the assumption that most customers are crooks and so they set policies accordingly. Big mistake. Because not only are policies anti-customer but… Read more »
Mark Lilien
Guest
10 years 11 months ago
The most famous return policy: Rich’s (an Atlanta department store in days gone by) took back everything, even merchandise clearly purchased from its competitors. Like many other retailing debates, return policy costs can be measured. Many retailers charge the returns back to their suppliers, which doesn’t eliminate the loss, but it helps. There’s no doubt certain shoppers abuse return policies, and there’s no doubt certain retailers hurt themselves (some with excessive restrictions, some the opposite). The #1 issue: if the return policy is generous, is the retailer buying the goodwill of abusers? The #1 solution: software that clearly identifies the… Read more »
Bernice Hurst
Guest
10 years 11 months ago
This is certainly not a news flash to any of you, and sadly I do not have stats for it, but on the surface it appears that Americans are far more likely to return goods regularly or frequently than most other people. Based on my admittedly unscientific observations, most of the people I know take it as a god given right and would prefer to return than think carefully before buying. They also seem less reluctant to return something that isn’t quite as perfect as they anticipated and to find fault where it may or may not exist. Maybe I… Read more »
Mark Burr
Guest
10 years 11 months ago
Costco’s return policy is just a small item on a long list for a company that has it all going in the right direction. It’s no surprise. It’s also no surprise when you look at their comp sales month after month. Certainly their policy is a good one but it alone doesn’t weight out. It takes their entire approach. They are a great story. They aren’t really doing anything that should surprise anyone. It’s just that they are doing what so few choose not to. Nothing they are doing is complex. It’s that they are doing it at all that… Read more »
Odonna Mathews
Guest
Odonna Mathews
10 years 11 months ago

I have always found that a return policy reflects a retailer’s customer service philosophy. The policy should be clearly stated to consumers both in the store and on the receipt, especially if there is a time frame involved.

From my experience, it usually pays to give the customer the benefit of the doubt in product returns. Otherwise, company management can spend many times the actual cost of the product in their time “negotiating” the return. Customer loyalty data (kept confidential, of course) also can guide a retailer who isn’t sure a large return is “worth it.”

Carol Spieckerman
Guest
10 years 11 months ago

Costco is the one that not long ago acknowledged, then addressed (via their “concierge” installation service launch), the frightening drag on profits resulting from excessive returns of large electronics. Seems that many customers over-estimate their ability to set up complex systems and hit the returns counter out of frustration.

Not all retailers believe that their customers are out to cheat them…but the many that are lining up to add electronics to their line-ups are dealing with a less straightforward problem: Pilot failure!

Ben Ball
Guest
10 years 11 months ago
This discussion picks up where “How to create customer loyalty” left off a few weeks ago. The answer is the same. It’s what you do for me when you don’t have to, that matters. Case in point; a much anticipated “early dinner and a movie” last Friday night quickly turned into a “fix the flat tire and grab a bite to eat.” Saturday morning found me in the local Firestone dealer with 2004 paperwork in hand, saying “I see there’s no warranty in effect but I thought these might help you figure out the right replacement if I need one.”… Read more »
Bob Bridwell
Guest
Bob Bridwell
10 years 11 months ago
I’m wondering if anyone can offer an answer. We had a serial returner; brought back some things without UPC code they were so old. I was usually called when she wanted to return something. She was a widow and would promptly bring back milk on the “Use By” date, even if it was nearly gone. I traded her down from the half-gallon to the quart. We had a milk sale, she bought 1-1/2 gal and got one free. She returned a half-gallon the following week. I told her that it was a BOGO and sorry no refund. She told me,… Read more »
Ryan Mathews
Guest
10 years 11 months ago

Retailers discourage returns because, at the end of the day, they don’t want to be bothered with them. Assuming the public is criminal provides a good excuse for a bad service policy. Sure, there are lots of real bad folks out there trying to defraud the system; but there is a much higher percentage of customers who are honest. Do easy return policies build loyalty? I don’t know. Does a bad service experience (like making a legitimate return difficult or impossible) kill loyalty? Bet on it!

Dick Seesel
Guest
10 years 11 months ago
It’s pointless to treat the customer as the enemy when retailers wouldn’t have jobs without her. Assuming the retailer has systems sophisticated enough to refund sale prices (if the customer doesn’t have a receipt or gift receipt), a liberal return policy is one of the cheapest ways to earn long-term loyalty among your customer base. Goodwill and positive word-of-mouth (especially for a chain like Costco moving into new markets) are like free advertising, more than offsetting the abuses of a small minority of customers. If the retailer has strong internal controls elsewhere (to tackle shortage, for example), it should more… Read more »
Bernie Slome
Guest
Bernie Slome
10 years 11 months ago
Returns policy and returns experiences contribute greatly to the overall customer experience. A recent study conducted by KPMG LLP indicated that 75 percent of consumers said a simple return policy helped them decide which retailers to patronize. The survey polled 1,200 shoppers from Dec. 11 to 21, 2006. At our company, ICC Decision Services, we help retailers measure their customer service and the customer experience and we also have found that the returns experience plays a big role in whether or not a consumer returns to shop at a given retailer. Those retailers who ignore this important part of the… Read more »
Peter Fader
Guest
10 years 11 months ago

There are many apocryphal stories such as the one above (Nordstrom tires, anyone?), but there are few (if any) formal studies that carefully examine the link between return behavior and the components of lifetime value (i.e., length of time as a customer, transaction rate while customer is “alive,” and revenue per transaction). I’m doing such a study right now with several leading catalog marketers. It’s too early to report any results, but if anyone is interested, check in with me in a couple of months….

Stephan Kouzomis
Guest
Stephan Kouzomis
10 years 11 months ago
Such excellent comments by the panel. If a retailer of any product or service is consumer centric, and understands, when needed, the return policy is part of a complete and positive shopper experience, the value of building a loyal base of shoppers, on this policy, is most advantageous. Interestingly, retailers in this favorable return practice also reinforce the current core shopper base; and here is where the ‘word of mouth’ actions really pay off. If I’m not mistaken, the returned products are covered by the manufacturer up to a percent of the total sales of the brands sold. Just look… Read more »
John Roberts
Guest
John Roberts
10 years 11 months ago

A good return policy can be a source of differentiation and retailers should at least check that their policy is equal to their main competitors. In the UK, Marks and Spencer used this to their advantage for many years. You should also make sure you also empower your employees to understand the rules and see the benefits, as customers should be viewed as having a lifetime value, not just a single sale.

steve olson
Guest
steve olson
10 years 11 months ago
Sam’s Club is a constant victim of fraud on returns through fake or altered receipts, check fraud, and credit card fraud. In my opinion, the Sam’s Club’s membership base consists of the people who think that they are getting the same kind of membership as Costco but for a cheaper price. In reality, the two are very different in that Costco’s buildings are staffed better, merchandised better and a more pleasant place to shop. Not to mention the employees are paid better thus producing a more skilled knowledgable employee who is accordingly held accountable for his job duties. All this… Read more »
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