A liberal returns policy can encourage loyal customers, but, if too relaxed, it can be abused and eat into profits. It’s all about striking the right balance, says Liz Morrell

Returns policies can be an unexpectedly tricky part of running a retail business. Be too strict about accepting returns and you risk alienating customers and losing future business, but be too generous and there is potential for abuse.

While shoppers often think it’s their right to return a purchase, when, in fact, a retailer has no legal obligation to take back goods unless they are faulty. “Retailers tend to do it primarily as a gesture of goodwill,” says Paula Barrett, partner in the retail team at law firm Eversheds.

Of course, citing the letter of the law and flatly refusing to accept unwanted purchases would only alienate customers, encourage bad word of mouth and lose sales. Instead, a clear return and exchange process will not only lessen the administrative burden, but also lead to greater customer goodwill. So, what are the key considerations and how can you ensure returns policies work to the advantage of both you and your customer?

Firstly, retailers’ policies must be displayed prominently – usually on the back of receipts – and must be clear. TK Maxx’s approach is under review for this reason. Its present policy states: “We’re happy to give refunds on all items, as long as they are unused and returned with a valid receipt within 30 days. If you do return goods after 30 days, we will exchange them for goods of up to the same value, or offer you a credit note.”

A spokeswoman admits that this wording is open to interpretation, because there is no reference to goods returned without a receipt and it allows customers without receipts to return products for an exchange or credit note after the 30-day limit. “We want to improve clarity and customer understanding,” she says.

A generous offer

Marks & Spencer and B&Q, however, offer 90-day returns policies, giving customers three times as long as most retailers to return their goods.

Last year, B&Q took the unusual step of relaxing its returns policy, moving from a 28-day window for refunds or a credit note valid for six months with a receipt, to 90 days and issuing a credit note for goods returned without a receipt. What’s more, the credit note is now valid for a year.

The retailer also relaxed its stipulation on packaging. It stated previously that items must be returned as they had been sold, including intact packaging. Now, as long they are unused, B&Q doesn’t quibble.

B&Q customer services manager Richard Coxall says it made the change to its policy “to ensure customers have peace of mind when purchasing”. So far, he adds, the move has been “extremely well received”.

For M&S, its 90-day limit is a tightening of its policy. Until April 2005, its open-ended returns policy meant there was no time limit for returns with a receipt.

An M&S spokeswoman admits that part of the reason for the changes was the ambiguity of its policy. “It was pretty broad and open to interpretation. By making it more specific and giving the policy clear parameters, it is now clearer to both our customers and store staff. Essentially, it was about providing a more consistent service, because you could get a very different experience store by store,” she says.

John Lewis used to have an unlimited time span too, but changed its rules a couple of years ago. It now stipulates that return of goods must be “within a reasonable time period”, but clarifies this as “usually 28 days”. Andrew McMillan, manager of customer service for John Lewis, agrees that its previous policy could have been open to abuse; it would have been perfectly within customers’ rights to return products that the retailer then had no chance of reselling.

McMillan explains that despite tightening its policy, John Lewis wants to be flexible. “We will try to do more than our competitors. The refund policy, for us, is exactly what it says. It’s for our customers and our selling partners and is a guideline. We would prefer it if the product came back within 28 days because there is less likelihood of having a difficult discussion, but we want to do the right thing for our customers,” he says.

“However, we are a bit more relaxed and more flexible and do it in the belief that we can build a long-term relationship with our customers and so build loyalty. It is a balance of protection of profits and building loyal customers that will spend more with us in future.”

Pets at Home’s open-ended policy simply states: “If you are not happy with your purchase, we will give you a full refund or replace the item.” Undoubtedly, these are generous terms, but chief executive Matt Davies says they work. “We would rather design a system for the 98 per cent of people who are honest and trustworthy, than the 2 per cent who aren’t,” he says.

In addition, although some returns – such as food, which can’t be resold – could end up costing the retailer money, Davies says the price is worth paying. “It’s not in the company’s interest to be obstructive. If a customer has taken the trouble to come back to the store with a product, whether it’s faulty or they have changed their mind, we will do our best to ensure they go away happy. We want them to continue shopping with us and tell their friends,” says Davies.

Clearly, such a liberal approach won’t work for everyone and the very notion of being so open-minded goes against many people’s business instincts. However, it can – and does – work. So, as long as retailers provide sufficiently clear guidelines on returns for staff and customers, they will not only avoid disputes but may see a surge in customer loyalty, too.