Retailers give customers refunds and tell them to keep items

Discussion
Photo: @kiwitanya via Twenty20
Jan 11, 2021

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?”"

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


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David Naumann
BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
1 year 17 days ago

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
Guest

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
1 year 15 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
Richard Hernandez
Director, Main Street Markets
1 year 17 days ago

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.

Zel Bianco
BrainTrust

This will work in most cases, but will require a close watch on those that try to abuse the policy. As online continues to grow, so will the ways in which retailers will need to deal with this challenge. Third party companies that handle returns will take on more of this process.

Lee Peterson
BrainTrust

The proof of this concept is that Amazon has been doing this for years. From my personal experience, it seems they have a cut off in terms of the value of shipping cost being implemented three times vs. once, and if it doesn’t make the cost factor cut, they’ll just let you have it. This is another idea that is “shocking” to traditional retailers but I’d be willing to bet, since it’s been happening for years and now and is being copied, that the financials work out once you understand that shipping cost/profitability quotient is per product. Pretty brilliant IMO, and I doubt that you’d ever see traditional retailers try something like this were it not for Amazon.

Dave Bruno
BrainTrust

E-commerce just keeps on giving, doesn’t it? Free shipping and free stuff! We lose a nickel on every order, but don’t worry, we’ll make it up in volume! Seriously, I get the math. But we’ve got to find a way to stop this relentless margin erosion. Maybe returns services are a better alternative here?

Gary Sankary
BrainTrust

This makes sense from a customer service perspective and from an expense perspective. Good buyers negotiate allowances for returns (Not the same as accounting return allowance BTW) into their contracts so there’s really no incentive to go through the logistics hassle of returning the items on low retail, low margin products. And, as noted here, customers love it. So much easier.

Ryan Mathews
BrainTrust
In practice Amazon’s policy is even weirder than it seems. About two months ago I received an Amazon delivery not addressed to me and meant for a different address. Knowing somebody would be worried about the missing shipment I called Amazon to see if a driver could pick up the package and get it on its way to the right recipient. “Open it,” the customer service agent said. “If you want what’s in there keep it. If not just throw it out.” I called back, thinking I had encountered some disgruntled employee the first time around. I explained to the second customer service agent the mistake and described my first conversation. “That’s right,” she said. “Keep it if you want. Toss it if you don’t.” I hung up and delivered the package myself. Neither operator asked for a tracking number, or rightful recipient’s name. As far as they knew “the box” could have contained tea bags or a television. It didn’t matter to them. Does that make sense? Maybe if you are shipping hundreds of… Read more »
Shep Hyken
BrainTrust

In some cases this makes sense. However there will be abusers of this customer-friendly policy. That is what concerns me.

Some retailers have agreements with their suppliers that they will take back returns. In a way, they are guaranteeing their merchandise. This has been challenging for some suppliers. In the end, they have a choice to do business with the retailer or not. Now we’re entering into the era of “returnless refunds.” After a point, retailers (and supplier/manufacturers) will be able to predict the cost of this program. They will build their pricing model around this. It’s the only way it can work.

Ananda Chakravarty
BrainTrust

Yes. It definitely makes sense. I believe Paula had it right – it is a math problem. The real problem is computing it however – in real time. The data has to be available at the time the customer is looking to return such products, determining return disposition based on product, aging, price discounting, location, estimated processing cost, etc. Additionally, there is a communication aspect to this as well and how retailers can let customers know. Lastly, retailers need to ensure shrink is limited and precautions are taken. It should be straightforward, but they need to make sure the customer is not milking the free refunding and keeping the product option. Repeated refund tracking or a processing fee deduction can reduce abuse.

Richard J. George, Ph.D.
BrainTrust

The key here is having the analytics to ascertain the value of a return versus keeping the product. Such information can balance the cost of the return and the customer’s value. While larger retailers can invest in such systems, these tools may be beyond the investment necessary by smaller retailers.

Even without a pandemic, retailers need to address the issue of customers who are dissatisfied with a purchase. Assuming the dissatisfaction is legitimate, retailers need to recognize their responsibilities to make returns easy for customers. Customers already devoted time and money to purchase a product. They should not be burdened with additional effort to get what they already paid for.

David Leibowitz
BrainTrust

Target has been quietly doing this since last April. I suspect many other retailers have as well, prior to this being “news.”

Why? To help train the algorithms and reduce fraud in the system with disingenuous purchases/returns. Once this is out in the ether as a “policy,” it could be gamed.

Peter Charness
BrainTrust

Well it is a dollars and cents decision for the most part. I’m still expecting to see Amazon Emporiums opening in many cities featuring an eclectic collection of returned goods selling at incredibly low prices as a good vehicle for dealing with the return issue.

John Hyman
Guest
1 year 17 days ago

What a dangerous precedent this sets! I understand the math perspective but caution that ignoring the behavioral perspective could be enormously destructive. Imagine the impact when the company asks them to share their experience on that very company’s website (and they all do!)? Or their social networks?

Doug Garnett
BrainTrust

Will this end up making the waste of online buying even higher? We’re already fighting plenty of environmental problems from online purchases.

Still, this is no surprise. Although we have finally seen reasonable writing around the difficult expenses of returns, it is an issue which has been ignored for far too long.

That said, if this policy becomes widespread, it’s also a way of spreading unwanted things across society. And that also can’t be good for us. What happens when the customer is told to keep that unwanted thing?

My father-in-law once was sent 2,000 shaker pegs when he had ordered 20. Some might think “great!” Let me assure you, it wasn’t. There was an obligation attached to figure how to get rid of them.

Laura Davis-Taylor
BrainTrust
Laura Davis-Taylor
Founder, Branded Ground
1 year 17 days ago

I’ve only had this happen once, and it was for apparel clearly sent from Asia. It was weird for me, but I figured they didn’t want the shipping expenses. Problem was that I still had to do something with an item that didn’t fit — and I would have preferred to have the right item. I’m environmentally conscious, so I got stuck on what’s worse–a wasted product or the impact of shipping a product overseas, when I would not have even bought it had I known it was sourced internationally. The outcome? Never ordering from them again.

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, which certainly doesn’t bode well on the books. Not an easy one to solve, but I do agree AI can help determine the if/thens to streamline it sensibly.

Ed Rosenbaum
Guest

I see this more as a benefit than a risk in most cases. Of course, if someone wants to take advantage of a situation, they will. There is always someone wanting to get something for nothing, causing a loss for the retailer.

On the other hand, there are companies like Chewey and Zappos, both who are committed to outstanding customer service.

We bought something from Chewey that just did not work out. They quickly refunded our money and said to keep the item. We gave it to someone having a need. From that day on we always look at their website first to order what we might need for our dog. They have us as a committed customer because we believe in their service.

David Adelman
Guest

Absolutely. I ran into this issue when I was in retail home furnishings all the time. When an item is slightly damaged, defective, or not wanted, it is often more costly to return the item, especially if it is oversized.

The other issue many manufacturers and third-party sellers have is what to do with the repackaged items once they receive it, assuming it’s even in good condition.

The last and most important part is the impact all of these returns have on our environment—the increased carbon footprint, packaging, and perhaps the total trashing of the items returns create.

Letting the end consumer simply keep the item or, even better, donating it to someone less fortunate in need is the best solution for everyone!

James Tenser
BrainTrust

I’ve had two experiences in recent months with items that arrived damaged. In both instances the ecommerce sellers looked at the photos I sent and shipped replacements free of charge without asking for returns. One of those was a $500 furniture item that weighed more than 100 lbs. They made good, but I was left with the problem of disposing of the unusable one!

I understand the money math behind both companies’ decisions, however, as described by Paula and other smart folks here.

A household with multiple holiday gifts that need exchanging, due to wrong sizes or other “normal” preferences, could show up as a bad actor if sellers are not intelligent about evaluating their behavior. Other folks may read today’s news as an invitation to game the system. Retailers will need to monitor this, of course. I’d bet they will.

Craig Sundstrom
Guest

Obviously this CAN make sense; will it always? I think that depends on how many people try to “game the system,” and what safeguards are in place to prevent it. Certainly, tracking purchases is the minimum that would be required. There’s also a communications issue: rules need to be clearly communicated, and undue complexity is to be avoided.

Bob Phibbs
BrainTrust

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?” Essentially you’ve got a gift store for cheap merch now Amazon, Walmart and others. Part of the reason online suffers from 40-50% return rate is those purchases are not considered much. Click and buy. Smart retailers will understand the store is the hub profits come from — especially when returns are a historically low 6%.

Kenneth Leung
BrainTrust

It is all about the cost of shipping and disposal versus value of the goods. With modern analytics it is very easy to calculate the cost benefit of shipping return versus letting the customer keep the dissatisfied-with item. You can also attribute the return to the shopper and identify customers that are potentially abusing the returns program. Another way is to return a small but critical part of the product to reduce the shipping cost (like the key or a custom part) that will render the product inoperable.

Kim Souza
Guest
1 year 15 days ago

This happened to me recently with Amazon on an item that cost $10. I no longer needed the item and sought to return it. I was told to keep it and I would get a credit of $10 on my next order. Just two years ago Amazon wanted me to return an empty box when the product was left out of it before shipping. My, how times have changed.

I applaud the move to credit shoppers and not require the return of low-cost items that would render a loss for the seller. I like the idea of asking the shopper to donate the product to a non-profit and then allowing the seller to take the tax deduction. There should be safeguards in place that alert the retailer of those bad actors who try and OVERUSE the returns.

ronenluzon
Guest
1 year 15 days ago

This approach makes sense from a cost perspective, but it’s essentially applying a Band-Aid and expecting a serious wound to heal. The fact of the matter is that reverse logistics are a thorn in retailers’ sides and that has been further exacerbated by Covid-19 and the shift to e-commerce. The culprit? Overwhelming its sizing issues, so instead of cutting their losses, retailers need to be addressing the sizing problem at its source, ensuring a great fit and negating the need for a return. A continuation of the same policy might reduce costs, but it’s unsustainable for businesses and the environment.

Earl
Guest
9 months 3 days ago

This just happened to my daughter, shopping at Target with a gift card. I don’t how you cut this or make reason of this process, it’s going to lead to fraudulent returns to net items at the seller’s expense. This basically boils down to the consumer’s paying higher prices — not much different than the effect shoplifters have — so even though we have shifted to more online purchasing and possibly reduced shoplifting, this new avenue of theft is going to be an easier score for a thief without the risks of being caught or having consequences dealt to them.

All I can do is shake my head. If the sellers don’t want to deal with returns then have a no return policy or a mandate to return to the storefront option only. This is stupidity from a business standpoint.

wpDiscuz
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?”"

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