Costco's unhappy returns

The Baltimore Sun

It was a return policy made in shopper heaven, but it became hellish for Costco Wholesale Corp. Customers at the membership warehouse chain could buy a snazzy big-screen television, use it indefinitely and take it back anytime. They could use their refund to buy a newer model - often for a cheaper price.

Costco's generous policy was a big hit with consumers. "It was probably the best return policy in retail," said Jamil Brush, 30, a claims examiner from Los Angeles. "They pretty much would take back anything."

But even grateful shoppers suspected others were abusing the policy. After all, Brush added, "What, basically, would stop someone from buying something, using it for a little bit, and taking it back?"

And this week, after losing "tens of millions of dollars" annually on the policy, Costco said enough.

Its return policy for consumer electronics was cut to 90 days in California, and it will take effect nationwide over the next five weeks. The changes come as many in the industry are rethinking return policies.

Customer reaction was mixed.

The policy change was no surprise to Mike Lopez, a police officer shopping at a Costco in Los Angeles on Tuesday. When a plasma TV he bought in 2004 started losing color last year, the 40-year-old resident of Glendale, a Los Angeles suburb, returned it with "no questions asked."

"It was awesome. It was great," he said. "It didn't take a rocket scientist to figure out that someone was going to abuse it eventually."

Others were annoyed. Glendale resident Ofelia Ayvazyan said that Costco staff made her wait more than 20 minutes before letting her return a 42-inch flat-screen television she bought three years ago.

She said she'll shop for electronics elsewhere from now on - after she spends the store credit worth $2,932.72. "I'm not happy with the new policy," she said, but "at least I got my money back to buy a new one."

The warehouse chain is reining in its cushy return policy for consumer electronics such as TVs, computers, cameras and iPods. At the same time, Costco said it will expand the manufacturer's warranties on computers and TVs to two years from one. The new policy won't affect items purchased before Monday.

Costco will continue to allow shoppers an unlimited time to return other types of merchandise.

The problem was costing Costco "literally tens of millions of dollars" annually, said Chief Financial Officer Richard Galanti, who maintained that the initial reaction from customers has been supportive.

"Nine out of 10 of the people blogging are defending it, saying, 'Hey, this is great,'" he said.

Across the industry, retailers are tightening their return policies, said retail expert Burt P. Flickinger III, managing director of Strategic Resource Group, a business strategy firm.

"Shoppers seem to be doing more and more sophisticated scamming because they think retailers are making a mountain of money," he said, when profits actually are often "razor thin."

But Britt Beemer, chairman of America's Research Group, said retailers' fears that shoppers will abuse return policies generally are "overblown."

"The number of people who abuse the policy is minuscule compared with the number of people who are going to be upset" by Costco's decision, Beemer said.

He predicted that other retailers with generous return policies on electronics, such as competitor Sam's Club, will benefit, so long as they don't follow suit. "If I were Sam's Club, I'd make a big deal out of it at this point," Beemer said.

Sam's Club has a six-month limit for computer returns but will retain its "100 percent satisfaction guarantee" on everything else, spokeswoman Susan Koehler said Tuesday. "From your membership to a food item, it is returnable."

Historically, Costco's policy was that customers could return anything anytime, Galanti said.

But about 4 1/2 years ago, Costco - which charges an annual membership fee of $50 to $100 to shop at its warehouse stores - changed its return policy on computers "from infinity to six months," he said.

In an effort to make sure shoppers kept what they bought, Costco more recently began offering technical support on electronics items. Products are so complicated now, he said, that people often need help with iPods or high-definition TVs.

Still, shoppers kept bringing back merchandise. "We had significant returns, well in excess of industry norms," Galanti said.

Leslie Earnest and Adrian G. Uribarri write for the Los Angeles Times.

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