For some unknown reason I attempted the impossible one
year, buying my wife a purse for Christmas. The minute she unwrapped her
present, I knew it was going to join my long list of “it’s the thought that
counts” gifts that missed their mark. I had bought the purse from a locally
owned retailer at the nearby mall. After waiting for the post-holiday crowds to
subside, my wife and I headed off to the mall to return the purse and take care
of other assorted returns and exchanges. After easily returning a couple of
ill-fitting sweaters at a department store, we went to return the purse. Much
to our dismay and disappointment, we learned that the retailer has a very
limited return policy, forcing us to exchange the purse for store credit rather
than our desired refund. Even more frustrating was the fact that despite
several phone calls and visits on our part, there was never a manager available
to discuss our dilemma. Long story short, I ended up exchanging the purse for
some unwanted products, swearing to never ever shop at that store again. And
I’ve been true to my word and I’ve been telling friends and family not to shop
there either.
Return and exchange policy are not easy for retailers to
create or manage. They vary from retailer to retailer and differ often based on
the product offer. For example, consumer electronics retailers cannot offer the
same return policy as a clothing retailer. Determining the appropriate return
policy is an inexact science but the results of that policy impact many parts of
a retailer’s business, including sales and profits, customer satisfaction and
loyalty, vendor relationships, and employee satisfaction. Let’s review each
area for how it’s influenced by the return policy and vice versa.
1. Sales and Profits:
This is by far the most difficult element to balance with a return and exchange
policy. A policy that is too strict, especially compared to that of a
competitor, and retailers can adversely impact their top line, which impacts
their bottom line. Circuit City tried a few years ago to implement a very
stringent 15% restocking fee on all returns. Customers rebelled and Circuit
City’s main competitor pounced on the opportunity. Best Buy ran advertising
emphasizing how much more customer- and return-friendly they were. Circuit City
not only lost market share they’ve never recovered but they had to cancel the
restocking fee to boot. Having a return and exchange policy that’s too severe
is often a silent business killer. Customers may not tell the retailer that
it’s one of the main reasons they don’t shop in the store but retailers need to
understand that it can be a contributing factor.
More
often, the impact on the bottom line is felt by product returns and exchanges
that can’t be passed on to the vendors. The result of these types of returns
and exchanges is an immediate and negative impact on profits. These are the ones
that sting the most and so have the most influence on what the return policy
will be. It’s also why so many retailers align their return and exchange policy
with what’s made available to them by their vendors. The more lenient key
vendors are, the more lenient retailers can be. This is an area where retailers
often make rash decisions on their return and exchange policy.
They may have a very successful policy that helps their market position and
drives their overall business but when one customer abuses the policy they
quickly change it. Every retailer should have a good estimate of what the actual
impact is on their bottom line. The desired status is an exchange and return
policy that balances driving topline sales without too much pressure on bottom
line performance.
It’s important for retailers to create a holiday-specific return and exchange
policy. Most customers expect that any non-perishable products purchased during
November and December be covered under a fairly liberal holiday policy. Most
national retailers’ policies include the ability to return or exchange purchases
up to thirty days after Christmas. While many independent retailers struggle to
match this timeframe, failing to do so can cost them sales and customers. It is
the best interest of most retailers’ to have the most liberal holiday policy
possible and leverage it to their advantage.
2. Customer Satisfaction and Loyalty: While your return and
exchange policies may have some influence on the customer’s purchase decision,
it greatly influences whether or not the customer making a return or exchange
will remain your customer. Most customers have almost infinite options of where
to buy. When they become unhappy with one retailer there is another retailer or
website waiting to take their place. Ultimately your return and exchange policy
needs to meet or exceed the customer’s expectations.
The expectations are set
by your industry’s standard and your market position. If you’re a low cost
provider in your industry a customer will rarely expect you to have the most
liberal return policy. If you’re a high touch/high service retailer a customer
naturally expects a more customer friendly return and exchange policy. Failing
to meet your customer’s expectation will result not only losing that customer
but it can also greatly impact your reputation in the market. Exceed their
expectations and you not only create loyal customer advocates but can actually
become known as a “Nordstrom-like” place to shop.
Whether your policy is
liberal or narrow, it’s critical that it be well communicated. It should be
posted at your cash wrap counter, as well as on your receipts and/or in a bag
stuffer. Failing to adequately communicate your return and exchange policy leads
to disappointed and unhappy customers, often times creating hostile situations.
Retailers often miss the
opportunity to turn unhappy customers returning or exchanging products into
loyal advocates. It’s important to train employees to approach returns as an
opportunity to delight the customer rather than approaching as a dreaded duty.
When a customer enters the store with a return they should be met and greeted by
an employee before they get to the cashwrap counter. Employees should be
empathetic to the customer’s situation and never hostile. They should be trained
to ask the customer questions to identify why the product didn’t meet their
needs, listening carefully for opportunities to create a satisfied customer.
Employees are
often too quick to give the customer a refund and miss the fact that a customer
may be better served by showing them a different product. Most important, they
should be trained on saving the customer and not, like so many retailers
training on, saving the sale.
3. Vendor
Relationship: In the late 1980’s and early 1990’s, retailers used liberal
return policies to win customers from their competition. While customers loved
this new approach, it created big headaches for vendors. Retailers became used
to sending their vendors all of their returns and just passed through to them
the increase in returns caused by the loosening of the policies. Vendors and
manufacturers, seeing their profits eroding, revolted. Over time, retailers and
their vendors and manufacturers have balanced out the needs of the retailer’s
return and exchange policy with what the vendors and manufacturers can offer the
retailer.
A retailer’s
return and exchange is just that, the retailers, and it should not be enforced
at the vendor’s and manufacturer’s expense. Retailers need a healthy and
mutually beneficial relationship with their vendors and manufacturers. It’s
appropriate for you to work closely with them to create your policy and build
into that policy what they can and cannot do. It’s not appropriate to attempt to
send all returns and exchanges back to them if it is outside their policy and
guidelines. Many retailers when returning products forget the golden rule; do
unto others as you would have them do unto you.
4. Employee
Satisfaction: The area most often overlooked when considering the impact of
a retailer’s return and exchange policy is employee satisfaction. Employees bear
the brunt of a customer’s displeasure with either the policy itself or the way
the policy has been communicated. Conversely, if the retailer has a liberal
return policy the employees will also benefit. Making sure the employees have
good guidelines for applying the policy is important. Creating a decision making
guide can help employees understand what they can and cannot do. Empowering your
staff to represent your store is very important. Criticizing their decisions
after the fact without offering any guidelines can negatively impact employee
morale. If employees are not applying the guidelines and policies that have been
put into place then it’s important to coach them on how to do so. Undermining
them, especially in front of the customer, is inexcusable. Success comes from
not only educating your customers but your employees as well.
One of the
hardest things to teach employees is to not take it personally when a customer
is upset about the return and exchange policy. Because of their pride and
loyalty they have to their employer, employees often personalize what’s taking
place. It’s important that they understand that returns and exchanges come with
being a retailer and their goal is to balance the customer’s expectations and
the store’s policies.
Your return and
exchange policy can be a strategic competitive advantage for you that
differentiates you from your competition. Lands’ End does just that. Their
"Guaranteed. Period" policy has always been an unconditional one that reads: "If
you are not completely satisfied with any item you buy from us, at any time
during your use of it, return it and we will refund your full purchase price."
Lands’ End leverages that policy in their stores, website, and catalog channels.
The result is a very dedicated long-term customer base. If a retailer is going
to have a liberal return policy it’s a mistake to not use it to their advantage.
. If a liberal policy doesn’t result in either more topline or more satisfied
customers, it’s probably costing the retailer profits.
Another choice
is to have a policy that matches your competition. While it won’t differentiate
your store, it won’t disappoint your customer base. Rarely, if ever, should a
retailer ever have a policy that falls short of their competition’s policy. Only
those retailers who offer a considerable price advantage can get away with
offering a limited return and exchange policy, and even those retailers will
still find themselves disappointing customers.
Balancing sales,
profits, customer expectations, vendor policies, and employee satisfaction is
never easy. It is safe to say that the more liberal your return and exchange
policy can be, the happier your customers and employees are. The flip of side is
that too liberal a policy and you’ll see your profits dwindle away. Striking the
balance is never easy, but then again, no one ever said retailing was easy. If
it was, it wouldn’t be as profitable.
- Doug
About the author:
Doug Fleener is founder of the Dynamic Experiences Group. He is a veteran
retailer with more than 25 years of hands-on retail experience with world-class
retailers including Bose Corporation and The Sharper Image. He has also owned
and operated his own specialty stores. His new book, The Profitable Retailer:
56 surprisingly simple and effective lessons to boost your sales and profits
published by Acanthus Publishing.
Doug is now president and
managing partner of Dynamic Experiences Group LLC, a Lexington based retail
consulting firm dedicated to helping retailers create unique customer
experiences that results in higher sales and profits. Learn more at
www.dynamicexperiencesgroup.com or call Doug at 866-535-6331.
Fleener also shares his
knowledge of experience based retailing in a series of custom key notes and
workshops designed for stores, businesses, corporations, non-profits, and trade
associations of all sizes. His casual style and quick wit make him not just a
crowd pleaser but also an incredible motivator, encouraging people to take
action and deliver extraordinary experiences to customers and employees alike.
Learn more at
www.dougfleener.com.
