December 16, 2005 in Business

Point of no return

Wall Street Journal
Assocaited Press photo

Tammy Farmer, left, her daughter Abie and husband Archie look over a crock pot on sale at Sears in Paris, Texas. Sears is among many retailers that are tightening rules on gift returns.
(Full-size photo)

This Christmas, don’t expect many happy returns.

Retailers are further clamping down on return policies, imposing penalty fees and using sophisticated computer databases to flag serial returners trying to game the system. Some are also adding exceptions and caveats to their return policies — for instance, making it particularly hard to return certain kinds of products, such as electronics.

In October, Sears began to impose a “restocking” fee amounting to 15 percent of the purchase price for some products that are returned used, or with missing parts or manuals. The new policy covers electronics, home appliances, tools, lawn- and-garden merchandise and automotive items — though not clothing or home furnishings, among other things.

Earlier this year, Sears also tightened its time frame for returns, specifying that electronics and mattresses had to be returned within 30 days, while all other merchandise had to be brought back within 90 days. Previously, Sears simply said all goods had to be returned within “a reasonable period of time.”

The move by Sears is only the latest crackdown. Retailers have been tightening up return policies for several years — making returning goods an increasingly complex process for consumers to navigate.

Stores are trying to target customers who abuse the longstanding practice of legitimately returning goods. Retailers estimate return fraud costs them $16 billion a year. Their goal in identifying specific goods in return policies is to concentrate on the areas where they suffer most from fraud, says Joseph LaRocca, vice president of loss prevention for the National Retail Federation. For the holidays, these include electronics such as camcorders and digital cameras. (At other times of year, Halloween costumes and prom dresses tend to be used and returned.)

But consumer advocates worry that loyal customers will get caught up in the sweep. To avoid problems, shoppers may want to check the exact policy for the products they’re buying. For instance, return policies for a company’s stores and Web site may not be the same.

During the holidays, shoppers should ask when the time limit for returning purchases begins. Some stores will extend their 30-day rule for gifts bought early in the holiday-shopping season, so that recipients have time to return gifts after Christmas. But there are exceptions. Best Buy Co., for example, will allow most purchases between Nov. 1 and Dec. 24 to be returned until Jan. 24. But some common gifts, such as digital cameras, must be returned by Jan. 8, and computers still have to be returned within 14 days, no matter when they were purchased.

If a store won’t budge on its time limits, and you suspect the recipient might want to return the gift, then it’s actually a good idea to procrastinate and buy later in the season.

Restocking fees are increasingly becoming standard. A spokesman for Sears’ parent company, Sears Holdings Corp., based in Hoffman Estates, Ill., said the restocking fee brings Sears in line with its competitors, which have levied such fees on electronics and other products for some time.

Another way stores try to target people who abuse the returns system is by tracking the return habits of individual shoppers. The cash registers at Wal-Mart Stores Inc. automatically flag a customer who tries to return more than three items without a receipt in a 45-day period, the company said. A manager then has to approve the return. The cash-register messages disappear after six months if a shopper makes no more returns without receipts during that time.

J.C. Penney Co. says it uses an internal database for tracking returns, especially if the customer doesn’t have a receipt. A spokeswoman says the system occasionally flags customers, based on the frequency and dollar amounts of returns, but she declined to be more specific.

Gap Inc. says it tracks customer returns internally but doesn’t use the system to deny returns. Nordstrom Inc., Kohl’s Corp. and the Macy’s division of Federated Department Stores Inc. also have in-house tracking systems, though the companies didn’t explain the criteria for evaluating returns.

Some stores subscribe to a database called Verify-1, which was created by The Return Exchange, a closely held company whose clients include Sports Authority Inc. and the Express division of Limited Brands Inc. When a customer returns merchandise to any store that uses Verify-1, the cashier swipes the shopper’s driver’s license, which keeps an inventory of any return the shopper has made.

Figuring out exactly what triggers the system is tough, because The Return Exchange is tight-lipped about its criteria for rejection, saying only that it detects fraud through “rules and statistical models.” But if a shopper crosses the database’s line, the return is denied. Customers who are turned down may request, via email, a report from The Return Exchange with their return- activity history.

In signs by its cash registers, Express explains that it may refuse a return if the customer returns items too often, takes back too much merchandise or returns goods to more than one store. It doesn’t give precise guidelines.

Shoppers can be flagged for returns to multiple stores. So if you frequently shop at a chain that uses the Verify-1 database — the retailer should mention that in its posted return policy — it may be helpful to visit just one store. Salespeople and managers there will begin to recognize you as someone who buys a lot of merchandise and isn’t trying to run a scam.

Consumer advocates, though, are concerned that shoppers aren’t given enough information about what would cause a return to be denied. “I understand that there’s a big problem with return abuse,” says Edgar Dworsky, a consumer attorney and founder of “But the percentage of consumers who are honest consumers and may change their minds about a good — those are the ones I’m concerned about.”

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