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No More Lifetime Guarantees – The Importance of a Balanced Return Policy
In February 2018, L.L. Bean made the tough decision to change its lifetime return policy, which had been in existence for over a century. Following the policy change, the company received backlash from its customers, with many of them voicing their frustrations on twitter. One user tweeted “L.L. is 100% rolling in his grave #NoRespect.” Another complained that L.L. Bean could no longer justify its price point, tweeting “Seriously? The only reason to pay the mark up at L.L. Bean was you knew that product was guaranteed for life.” One disappointed customer even filed a class action suit against the company for not honoring its lifetime warranty.
L.L. Bean’s new return policy states: “[i]f you are not 100% satisfied with one of our products, you may return it within one year of purchase for a refund.” The company’s previous policy was one of the most generous in the retail industry, with the company allowing its customers to return items even if they had bought them over a decade ago. Shawn O. Gorman, L.L. Bean’s executive chairman and great-grandson of Leon Leonwood Bean, the Company’s founder, explained that the reason for the change was that “[a] small, but growing number of customers [had] been interpreting [L.L. Bean’s] guaranty well beyond its original intent.”
The recent backlash against L.L. Bean underscores the importance of implementing a clear return policy that balances customer satisfaction and retailer economics while complying with applicable law. If a retailer’s return policy is too liberal, the retailer runs the risk of customers abusing the policy. If a retailer’s policy is too stringent, its customers may be reluctant to buy merchandise. A return policy builds trust between a retailer and its customers and is even more important in the e-commerce world, in which customers cannot inspect merchandise before buying it. “A survey by e-BuyersGuide.com found that 86 percent of online shoppers rated return policies of significant importance in choosing an online merchant.” Many e-commerce retailers have tried to attract shoppers with return policies that provide for extremely forgiving terms. However, as L.L. Bean learned the hard way, these companies have found that accepting returns comes at a high cost. According to a report from Appriss Retail, ten percent of sales ($351 billion) made by the retail industry last year, were lost to returns.
In tailoring their return policies, retailers should continue aiming to balance customer satisfaction with the cost and hassle of managing merchandise returns. In 2016, Harvard Business Review published an article about how companies may be able to achieve this balance, highlighting six specific suggestions: (1) be selectively lenient based on the cause of the return; (2) be selectively lenient based on time; (3) be selectively lenient to enhance the perception of quality for certain products; (4) be selectively lenient for more important customers; (5) limit gift returns; and (6) start the return policy later (e.g. after a trial period).
When adopting and updating their return policies, retailers should also be sure to comply with federal, state, and municipal laws and regulations. For example, the Federal Trade Commission enforces a “Cooling-Off” rule that gives consumers a three day right to cancel a sale made at their home, workplace or dormitory, or at a seller’s temporary location, like a hotel or motel room, convention center, fairground or restaurant. And at the state and municipal level, a retailer may have to meet certain disclosure requirements with regard to its policies concerning refunds, returns, or exchanges. Otherwise, default rules may require the retailer to accept returns for a minimum period of time.
As e-commerce is becoming the preferred way to buy and sell many products, and as L.L. Bean’s experience shows, it is increasingly important for retailers to implement well-crafted and balanced return policies.
Tiffany Tsang is an Associate in the firm’s Corporate Group. She focuses her practice on mergers and acquisitions, corporate governance, corporate financing and compliance.
Prior to joining Goulston & Storrs, Tiffany served as a judicial intern for The Honorable Norman H. Stahl at the U.S. Court of Appeals for the First Circuit. She was also a legal intern at Fresenius Medical Care North America. While in law school, Tiffany participated in the Poverty Law and Practice Clinic which assists low income individuals with legal needs in the areas of employment, housing, and welfare.