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Topic ClosedRhyme & Reason For Restocking Fees

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Karen Shelton View Drop Down
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Joined: November 26 2000
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Direct Link To This Post Topic: Rhyme & Reason For Restocking Fees
    Posted: June 22 2006 at 2:34am
In the early days of the Internet many companies, included, had extremely liberal return policies for their online stores.  Most did not charge restocking fees, have time limits on returns and did not require a formal RMA return system.
As online shopping became a huge phenomena, online companies discovered that they suffered major losses on returns if they did not charge restocking fees. 
Today a large majority of online companies (especially those that offer competitive pricing) require some form of formal RMA process, restocking fees (10-20% or even higher) and have implemented stricter return policies (7-14 day return requirements, formal RMA requests, etc.,)
Reasons For Restocking Fees
There are a number of reasons for the advent of Restocking Fees on returned purchases:

1.  Blatant customer abuse - buy & wear & then return in "used" quality but expecting full refund.  You've heard the stories.
2.  High cost of returns (man hours, transactions costs w/credit card companies & banks)
3.  To encourage shoppers to be more responsible about ordering online.
4.  Increase in customers sending back products that not returnable due to a variety of reasons.

The high cost of returns have prompted many brick and mortar companies like The Gap to get very strict about returns.  Several larger retail firms now require that their customers provide their drivers license or other forms of ID so that before their returns are authorized they can be "checked out" in a national data base of return abusers.  This practice has been covered recently in the media.
When a customer is deemed a "repeat offender of inappropriate returns", they will be blocked for making further returns on purchases.  Although this practice sometimes shocks return abusers, it actually helps the average consumer who is ultimately the one that "eats" return abuses because of the eventual price increases.
Think about it, if customers are allowed to buy brand new hair accessories, clothing, jewelry and then wear them to their Prom, Wedding or Special event and then return them after wearing them in their hair or on their body, would you want to buy that item?  Of course not.  Every customer wants brand spanking new merchandise and they are absolutely entitled to have that.  It is only right and fair to have the best your money can buy.
When companies have return losses such as customers sending back obviously worn items, the company must pass on the loss in some way.  Ultimately they raise their prices so that everyone in the consumer buying pool pays the price for return abuses across the board.
This is a standard pattern in the retail world that can be traced back for many years.  Why do you think that the price of everything continues to go up?
Other Restocking Fee Considerations
Other things to consider about restocking fees:
1.  Companies must pay a transaction cost or fees on every transaction that a customer makes - both at the time of purchase and the time of refund. 
When a customer returns a product, for whatever reason, the company still must pay a transaction fee that ranges in percentage points.  Which is a loss to the company ultimately.
2.  Humans must deal with any returned products. 
Restocking Product Procedures & Processes
So many customers ask why there are Restocking Fees when all it takes is to put the product back on the shelf.  They often ask - how hard can that be. 
Think about that for a moment. 
When a return package arrives it has to be logged in by a human.  Another human has to open the box, inspect and verify that the return is qualified for a refund.  Once the return has been inspected (and is deemed unused) the human has to enter the information for the refund into the customer's account.  They have to follow up to make sure that the refund is processed and that the customer is notified.  At times customers do email with follow up questions that customer care team members must answer.
After the return is completely processed it is then "repackaged" appropriately.  This can mean a variety of things from replacing the original packaging or casings.  The cleared item must then be re-entered into inventory in the software that manages the store's inventory.  Once the inventory has been updated the item must be bagged, tagged and then added to its original bin area.
As you can see, receiving returned products is not a simple matter or taking the box, opening it and sticking the return product on the shelf.
It is also important to note that most people who have jobs expect to be paid for the work that they do.  Therefore every return that requires human intervention is a return expense.
While I wish that some of the processes for returns can be automated - and many have been - the human component will never completely be eliminated.  Which of course means that it costs a company money to pay people to manage returns.  I also wish that Restocking Fees were not necessary but when did not have them, we consistently lost money and it could be traced back to returns.  Many companies would prefer to avoid Restocking Fees but do want to remain in business.
The Lost Sale Factor
Besides the transaction fees and the human labor cost of processing returns there is also the "lost" sale factor.  When a customer buys an item from an online store and they keep it in their possession for 14 days and then ask for a return, it means that the store can not sell that item yet it must ultimately accept it back as a returned item.
This means that if other customers wish to purchase the item it is not available because it has been sold.  When items are out of stock, customers will shop elsewhere and buy the item from a different merchant.   In essence when customers buy a product and hold onto it for the maximum return period and then send it back, the company has actually lost sales on that item in the interim.
Necessary Evil For Both Companies & Consumers
When you weigh all the various cost factors into returns, it should be clear that restocking fees are a necessary evil in the retail world - both brick and mortar and online.
If companies do not have restocking fees, check their prices.  You will probably discover that the majority of companies that don't have strict return policies or charge restocking have much higher prices than companies that are known for offering great pricing options. 
Companies that do not charge restocking fees also get around the high cost of returns by charging their individual vendors when returns occur.  Which again means that the consumers pay a higher price in the end.
Are there exceptions to restocking fees?
All reputable companies will not charge restocking fees when the return is due to the company's fault.  That means if the wrong products was shipped by mistake or the products are damaged during shipping (which will often be investigated by the shipper). 
Some companies will only offer an exact exchange for damaged products.  This is to discourage customers from buying a product, deciding they don't like it but not wishing to pay the restocking fee and deliberately damaging the products.  Yes, sadly this happens.  To prevent this abuse companies will only an exact exchange for damaged items and will often file a formal request for investigation with the shippers to make sure that the damage is a legitimate issue.
All of the major shipping companies have learned all the major "purchaing over the internet scams" and have many procedures in place to guard against claims of damage that are an attempt to get a free return.
Savvy Internet Companies Regarding Returns
Internet companies have also become very savvy at spotting returns that are not 100% unusued, regardless of what the consumer says.  Some companies refuse to take back some types of items that have a history of return abuse.
While Restocking Fees can definitely be annoying, ultimately they protect both consumers (from paying higher products charges due to return abuse) and companies that are trying to provide an honorable service and run a profitable business.
No companies ever get rich off Restocking Fees.  If anything, it helps them break even.  Everyone wins - the consumers do not pay unnecessary higher prices, companies stay in business and people have jobs to go to.
One way to potentially waive a restocking fee is to ask for a store credit instead of a credit card or cash refund. By offering to accept a store credit you are letting the company know that you will be returning to purchase more items.  Ask if you can get your restocking fee waived if you agreed to make another purchase in a short period of time (within 14-30 days) or be willing to accept a full credit in the store.
Rewarding Good Customers & Avoiding Bad Ones
Another major trend in today's retail world is the tendency for companies to try and avoid doing business with customers that are known money pits and working to attrack customers that are profitable, loyal and will be a regular buyer.
Corporate watch dogs have noted that corporations ranging from airline to banks and even online stores will go out of their way to encourage "good customers" and will refuse to continue to sell to "bad customers". 
If you are considered a "bad customer" because of serial return abuses, abusive behavior or other "undesirable" actions and you threaten a company with "I won't be back" don't be surprised to learn that they will probably be celebrating your leave knowing that a loss leading customer will be shopping with their competitors instead.   Sad but true.
Companies Are Sharing Return Information With Others
Another trend is that companies are sharing return information and helping flag product return abusers.  Which is the goal of the system used by The Gap and other retailers.
Keep in mind that if you are a product return abuser that your Return Karma will eventually catch up with you and you may find it impossible to return products due to your past return sins. 
Companies also share information on "trouble customers".  Those are the customers that complain about everything with little or no reason, file unfair chargeback claims or write unwarrented Better Business Bureau complaints that are thinly veiled attempts to punish or blackmail an honest company (yes that happens as well).
Many CEOs when polled with admit that they wish they could avoid Restocking Fees but when pressed will also admit that it is a necessary evil of doing retail business.
Do Your Homework
Protect yourself from any Restocking Fee surprises by becoming familiar with a companie's policies BEFORE you buy.  Reputable companies will publish their return policies on their website and will often print them on the inbox receipts, invoices or bills.  All reputable companies will provide restocking information on the phone or via Customer Care questions before a purchase is made.
Ask - never assume about return policies, restocking fees and timelines.
If you don't ask and get bit, even the Better Business Bureau will agree that it's the consumer's responsibility to find out BEFORE they buy what the company's return policies entail.
Happy Shopping!

Edited by Karen Shelton - June 22 2006 at 2:39am
That which doesn't kill you makes you stronger or drives you totally insane. :-)
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