LOYALTY RESEARCH, THEORY & SURVEYS

UT Haslam Researcher Finds Retailers Must Explain Restricting Purchase Returns or Face Customer Wrath

Return policy changes caused customers to question the retailer's ability to deliver quality service, resulting in a loss of trust. Because of this loss of trust, these customers said they would buy fewer items from the retailer and would not recommend it to others.

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GLO

‘Tis the season for returns. Merchandise returns from the 2024 holiday season are projected to total $160 billion, which is just a fraction of last year’s estimated 685 billion to $890 billion in purchase returns — or between 13.2 to 17 percent of all purchases. Consumer product return fraud is also growing quickly, accounting for at least $28 billion in 2024.

When retailers keep mum about return restrictions, they allow other parties to fill the void — possibly with ill-intent.

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Even before the COVID-19 pandemic, many retailers, such as Macy’s and Kohl’s, curbed their once-generous return policies in the face of high costs. In 2023, 81 percent of retailers surveyed by Happy Returns reported imposing stricter return policies, including shipping fees, restocking fees and shorter return windows.

Diminishing Returns

Perhaps the most infamous of the return restrictions occurred in 2018, when L.L. Bean changed its 100-year-old “lifetime” merchandise return policy to one year and required proof of purchase. The abrupt shift spurred furious backlash, even prompting some customers to file lawsuits.

This episode drew the attention of Huseyn Abdulla, assistant professor of supply chain management at the University of Tennessee, Knoxville, Haslam College of Business and his research team. When L.L. Bean changed the return policy, the outdoor apparel and accessories specialist issued an open letter to consumers sharing the reasoning for its policy change, a move Abdulla says drew media criticism at the time.

“The general sentiment in the media we saw was, ‘If you change the policy silently, many people who don’t return or even care about the return policies wouldn’t notice,'” Abdulla explained. “That motivated us to study this question, because you can’t say what would have happened if L.L. Bean didn’t communicate this decision and provide a rationale.”

Confronted with Negative Feedback, Control the Narrative

To explore the hot-button topic, Abdulla and his fellow researchers invited 1,500 U.S. consumers to act as a fictional retailer’s loyal customers in three experiments, monitoring their reactions to the invented merchant’s return policy restrictions. These restrictions included charging a significant restocking fee and reducing return periods to 365, 180 and 30 days, respectively. In one scenario, customers did not experience return policy changes. In the second, customers dealt with unannounced return restrictions. In the third, customers were informed of the new policies and provided an explanation for the changes.

Customers who regularly used the return service did view the restrictions with disfavor, but customers who did not or seldom returned purchases also reacted negatively to the changes. However, those who received explanations for the restrictions were much less upset than those who did not.

Return policy changes caused customers to question the retailer’s ability to deliver quality service, resulting in a loss of trust. Because of this loss of trust, these customers said they would buy fewer items from the retailer and would not recommend it to others. According to Abdulla, this aspect of the experiment tracks with consumers’ reactions when actual retailers quietly curtail return policies.

“If you go to Reddit, for example, or any consumer forum and search return policy changes, you see people talking a lot about the changes, and they make all sorts of inferences, and they gossip about what the ‘actual’ reasons behind these changes are,” he explains.

Abdulla adds that common suggestions include comments on declining product quality, speculation that a company is in financial trouble and other conjectures that have nothing to do with the retailers’ reasons for limiting returns. So, when merchants fail to explain restrictions on their return policies, they surrender control of the narrative about the changes. They allow those outside their organizations to create explanations that usually take the form of negative speculation, which can be detrimental to the merchants’ reputations and their profitability.

“This is the key message we want to take to the retailers,” Abdulla says. “Seeing L.L. Bean’s case with lawsuits may discourage you from announcing these policy changes to your customers, but it may get even worse if you do not do that.”

Honesty, the Best Policy

Abdulla’s observation reflects a major finding of the research: Communicating a rationale for restricting return policies significantly mitigates negative reactions. Companies can reduce negative customer reactions by explaining the costs of handling returns or dealing with abusive return practices.

“Honesty really is the best policy in this case,” Abdulla says. “Be open; be direct to your customers that you need to change this policy because it’s no longer financially sustainable for you. Use those narratives to justify your actions. Do not let your customers find answers elsewhere.”

Parallels in Other Industries

Retailers aren’t the only companies facing customer pushback on reduced perks. Airlines are sharply restricting their loyalty policies and credit card companies are limiting their complimentary benefit offerings, like purchase and return protections. Abdulla suggests those industries are ripe for study along the lines he and his fellow researchers used in this research.

“How customers react to those policy changes in other industries will be a natural follow-up for this study,” Abdulla says. “I expect that there will be similar reactions there that parallel with retailer return policy changes.”

“The Point of No Return? Restrictive Changes to Lenient Return Policies and Consumer Reactions to Them,” by Huseyn Abdulla, Michael Ketzenberg (Texas A&M), James D. Abbey (Texas A&M) and Gregory R. Heim (Texas A&M) appeared in Journal of Production Management, 2024, Vol. 70(8).

SOURCE University of Tennessee, Knoxville’s Haslam College of Business