Retailers give customers refunds and tell them to keep items

Discussion
Photo: @kiwitanya via Twenty20
Jan 11, 2021
Tom Ryan

Offering refunds without requiring the return is being adopted more broadly by retailers during the pandemic, according to a Wall Street Journal report.

In most cases, the cost of shipping the inexpensive or bulky item is seen as not worth the returned item.

The practice gained attention in 2017 when Amazon.com introduced “Returnless Refunds” as an option for sellers. At the time, Amazon said the feature was “highly requested” by sellers wanting to avoid time and cost of managing returns shipping and processing or for items that would be hard to resell. Processing returns can often range between 20 percent and 65 percent of the cost of goods sold, according to UPS.

A friendly return policy could boost the third-party merchant’s seller rating to earn more favorable search positioning on Amazon’s site. For Amazon, benefits included more uniform return policies across its platform and goodwill to drive Prime membership growth.

Walmart around the same time introduced a “Keep It” program for its marketplace sellers. Sellers gained the option to set price limits for items they want customers to keep. Walmart marketplace seller site states, “It may be more cost-effective to let customers both keep the item and get a refund.”

The Journal article noted that Target and Chewy also provide refunds for some items and tell customers to keep or donate the items.

Part of the reason for the increase in such refunds is that returns overall spiked over the holiday due to the acceleration in online spending during the pandemic and e-commerce’s higher return rate versus items bought in physical stores. Shoppers are also wary of returning items to physical stores.

But advances in artificial intelligence are making it possible to quickly ascertain the economic feasibility based on customers’ purchase history, the value of the unwanted items and the return processing cost. Amit Sharma, CEO of Narvar Inc., a reverse-logistics specialist, told the Journal, “We are getting so many inquiries about this that you will see it take off in coming months.”

DISCUSSION QUESTIONS: Does it make sense to offer refunds without requiring a return for certain items? How would you structure such a program to limit abuse?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"It’s really a math problem. If it’s going to cost you more to process it than to write it off, sure, let the customer do what she wants with it."
"Net-net, I get it, but it seems dysfunctional as a sweeping response–and I have to wonder when it becomes an “expected” cost of business..."
"My guess is while this seems smart, it leads to fraud. And one has to ask, “If the stuff you’re selling isn’t worth returning, why is it worth selling?”"

Join the Discussion!

41 Comments on "Retailers give customers refunds and tell them to keep items"


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David Naumann
BrainTrust

In some cases where the price and margin on items is very low, it makes sense for retailers to let customers keep items that they want to return for refund as it is more cost effective. Obviously, consumers can only learn about this policy at the point they are requesting a refund to avoid abuse. Another strategy that retailers should consider is to offer a 20 percent discount if the consumer would opt to keep the item they originally intended to return.

Peter Messana
BrainTrust

Sure, why do I want to pay to get it back, handle it and ship it a second time? Often it is cheaper to just refund it and let them keep it. Alternatively, there are companies that handle returns and pay some low percentage of the original value and they handle it all and auction off truckloads of items. The retailer gets something and doesn’t have to handle the return at all.

Paula Rosenblum
BrainTrust

When I was in the party supply business, when we’d contact a vendor because we’d received an overshipment of something, the vendor would generally say “Just keep it.” That told us (as if we didn’t know) that the cost of shipping and handling was simply not equal to the margin on the product.

So it’s really a math problem. If it’s going to cost you more to process it than to write it off, sure, let the customer do what she wants with it. If not, take it back. And, of course, keep a database of “frequent returners” and let them know if they’ve gone over the line, and simply request they start returning products (ideally with a re-stocking fee).

It’s funny — words like “handling” and “re-stocking fees” generally feel like “well, we get to keep some of your money” but in fact, with DTC returns, they’re real things.

And as I’ve said before, especially in apparel, returns are simply a fact of life.

Georganne Bender
BrainTrust

I agree 100 percent, Paula. It’s a math and ability to process the returns problem.

Some of the “keep the product” polices are company values as well. When my sidekick of almost 17 years died suddenly in November I needed to call The Farmer’s Dog to let them know not to send any more food for Sidney. They offered to call FedEx to stop the shipment in progress so I wouldn’t be upset when it arrived. I declined that offer so they sent the food anyway and asked me to donate it to a shelter, then they issued a refund. They sent a condolence card and two weeks later a bouquet of flowers arrived. The Farmer’s Dog has a customer for life.

Ian Percy
BrainTrust

My eyes are misty because of allergies! Really it’s the allergies.

Georganne Bender
BrainTrust

❤️

Lisa Goller
BrainTrust

Noticed this on Saturday when I tried to return an item that arrived broken. Felt immediate relief to skip the hassle of repackaging the item, going to the post office and waiting in line while socially distancing. This practice improves the customer experience and can inspire more trust and loyalty, long-term benefits that outweigh returns costs.

To limit abuse, retailers can focus on consumers who request the most returns and require that they either prove a defect or send the item back.

Steve Montgomery
BrainTrust

Glad to see your comment on abuse. My first thought was people will find a way to abuse this. Practice would be another version of buying a clothing item, leaving the tag on it and wearing and then returning it. I expect that there will be some who will share that they did this with their friends who will also try to game the system and secure an item or two for free.

Kim Steelman
Guest
3 months 8 days ago
I’ve seen this as well in a few different scenarios and thought it was great to not have to go through the return process hassle. Felt the company (Chewy) was doing a good thing by suggesting donating the items, which I gladly did. Also on 2 occasions with broken items I had to send pics of the broken items for replacement under warranty which again, way better than the hassle of returning. I never did quite understand a company paying to have a broken useless item shipped back to them for their disposal. There are much better cost effective solutions out there to weed out the abusers rather than returning said item(s). A person truly being honest regarding a return should not have any misgivings what so ever to send a picture of damaged item rather than going through the return process. If someone has an issue they most likely are not being truthful and a policy for an alternative in place e.g. choice A, B, or C. If an item doesn’t show damage from… Read more »
Gene Detroyer
BrainTrust

This happened twice to me over the last two months. My first reaction, from a business POV was — SMART! Then I thought about how many consumers will catch on and simply request returns knowing they won’t be required to return.

Here is my suggestion. Have the customer go through the return process. But when they print out the label, the code will indicate for FedEx, UPS, USPS that the product should not actually be returned, but disposed of at the first opportunity.

Herb Sorensen
BrainTrust

This seems like the most logical solution. The returning “shipper” simply returns the product to a reliable recycling agency, like Goodwill, and the retailer writes off their loss as a contribution to Goodwill, or whoever the beneficiary is. There are probably many good, non-profit beneficiaries that could help facilitate these things.

And maybe even the original purchaser could be requested to make that return delivery, taking the return shipping out of the picture. Possibilities! 😉

Xavier Lederer
BrainTrust

Great point Gene! We had exactly the same thought when our online sales of handcrafted chocolates took off several years ago. We couldn’t accept returns (who would buy fine chocolates returned by another customer)? We had the exact same fear as you describe: what would prevent the customers who have just got chocolates for free, to do it again indefinitely? The reality is: none of our loyal customers did. What we noticed is, the tiny minority of customers who want to cheat the system and complain just to get free products are often annoyingly transparent about it. Their orders therefore become easy to identify and to handle separately.

Gene Detroyer
BrainTrust

As you have discovered, and I think in most cases, those who try to take advantage of the system are a very small group. And I also believe that they can be identified for a small business just by looking and for a big business, by the proper software.

Ian Percy
BrainTrust

I understand the logic of the math and of virus control — but the hole just keeps getting deeper.

Heidi Sax
BrainTrust

If it’s cost-effective, yes. Depending on factors such as the cost of return shipping and product margins, or if the product is damaged and/or otherwise unable to be resold or returned to the vendor. It also pays dividends in keeping customers loyal and happy. As a customer, I have liked hearing that I can donate, discard, or keep an item that I don’t want and not have to deal with the hassle of returning it — especially in the pandemic.

Richard Hernandez
BrainTrust

A lot of online retailers have been doing this for a while. It looks like more retailers are doing this to reduce the return costs (and I am guessing returns have increased tenfold) and stay in keeping with with the contactless return policy most retailers have adopted.

Christine Russo
BrainTrust

Ahhh, returns — the red-headed step-child of a profitability matrix. Financially accounting for returns is a make or break strategy for increasing profitability. SMBs are just catching up to the return policies of the Amazons of the world and the goalpost keeps moving! Now, instead of just a lenient return policy, it’s get your money back and keep the item! I mean, this is a no-go for the smaller retailers – it’s too big of a financial burden. Using service providers like Newmine, Happyreturns and Returnly can keep retailers competitive.

Ron Margulis
BrainTrust

The world of reverse logistics for consumer goods has been altered dramatically by the pandemic. Prior to COVID-19, there were mechanisms that easily enabled the return, recycling, redistribution, etc. of goods, often involving pretty efficient third parties. CDC and other requirements caused retailers to limit returns and that has impaired the system. We will ultimately go back to functioning reverse logistics networks but in the meantime it will be more efficient for the supply chain to have customers retain or dispose of products in several categories, including most food items.

Camille P. Schuster, PhD.
BrainTrust

I have had this experience and was glad to avoid the hassle of returning the item. Once I was told to donate it if it was still usable; that was great when the item was not what I ordered but usable. In other cases all I could do was throw it away because it was defective and not usable. Given the difference between the cost of the item and cost of the return processing, the policy makes sense and avoids hassle both for the company getting the return and the customer doing the returning. Companies can keep track of what items and which consumers are involved in the returns. If a customer appears to be abusing the policy, then they could be asked to ship the product back. If a company is getting a lot of returns, that product or company could be delisted.

Jeff Sward
BrainTrust

When will we read about how “Keep It” elevates into “keep it and please shop elsewhere from now on”? “Free” deliveries and returns taught customers to buy first with comfort and then sometimes with reckless abandon. “Keep It” now puts a giant exclamation point on that habit. Sounds like the e-commerce equivalent of the ever deepening of the discounting by mall retailers. The math is totally understandable but the solution compounds the problem rather than solving it. Maybe like some other retail practices there will be rules and solutions that have to prevail during the pandemic and then revised practices that will work post vaccines.