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Liberal Return Policies: Lure or Liability?

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Photo credit: Lands’ End facility via CBS Sunday Morning

Retailers often wrestle with the decision of whether to delight consumers with liberal return polices or suffer the headache—and expense—of accepting items back.

This week’s CBS Sunday Morning program talked to a couple of companies known for their anything, anytime philosophies to find out why it works for them.

As it turns out, a lax policy doesn’t necessarily mean these retailers are inundated with returned goods. In fact, Lands’ End, which even accepts goods that have been tailored and monogrammed—no matter how long it’s been—sees a return rate that’s comparable to other less lenient stores, according to Kelly Richie, vice president of customer services.

And, they say, being trusting helps build brand loyalty—something that’s in short supply these days. “I think part of having a more liberal return policy conveys to the customer that we trust them and we appreciate their business, that we’re loyal to them,” said Nordstrom’s president of stores Jamie Nordstrom.

This love fest between customer and store keeps would-be cheats at bay—most of the time. But according the National Retail Federation, the industry lost $9 billion last year on returns fraud.

What keeps that number from climbing is a little psychology. First, once we make a purchase, it actually pains us a little to let it go. According to University of Southern California marketing professor Valerie Folkes, it’s due to the Endowment Effect, which boils down to “if you have something, it hurts to lose it,” she said.

And a liberal return policy may actually play in a store’s favor, without the pressure of a return deadline looming, we don’t focus as much on it and may ultimately forget about it, Folkes said.

So while there will always be that customer who buys a a frock and rocks it at her reunion before bringing it back, that’s more the exception than the rule.

“We do think people are generally good and fair,” Nordstrom told commentator Tracy Smith. “And that’s been our experience for a long, long time.”

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