Costco halts liberal electronics return policy

Refunds were costing the warehouse store chain 'tens of millions of dollars' a year.

By Leslie Earnest and Adrian G. Uribarri
Times Staff Writers

February 28, 2007

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 TV, 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, a 30-year-old Los Angeles claims examiner. "They pretty much would take back anything."

But even grateful shoppers suspected that 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?"

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. The policy will take effect nationwide over the next month. 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 Costco's Atwater Village store Tuesday. When a plasma TV he bought in 2004 started losing color last year, the Glendale resident returned it with "no questions asked."

"It was awesome. It was great," Lopez 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 Tuesday 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 would shop for electronics elsewhere from now on — after she spent the store credit worth $2,932.72. "I'm not happy with the new policy," Ayvazyan said, but "at least I got my money back to buy a new one."

The return policy had been a draw for Christine Domantay, a stay-at-home mom. "There are other places where their prices are lower, but I shopped at Costco because it was more of a guarantee," she said. "Now, I'm just probably going to buy it somewhere else where prices are more reasonable."

The warehouse chain is reining in its cushy return policy for electronic products, such as TVs, computers, cameras and iPods. At the same time, Costco said it would 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 period of time to return other types of merchandise.

Company President Jim Senegal said the big problem with electronics was that they had become so complicated that people got frustrated when trying to set up and operate them, so they returned them.

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 had 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 would abuse return policies generally were overblown.

"The number of people who abuse the policy is minuscule compared to the number of people who are going to be upset" by Costco's decision, said Beemer, who has polled 8 million consumers over nearly three decades.

He predicts that other retailers with generous return policies on electronics will benefit as 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% satisfaction guarantee" on everything else, spokeswoman Susan Koehler said Tuesday. "From your membership to a food item, it is returnable," she said.

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.