«

»

Sep 19

Print this Post

How the information age might have doomed REI’s generous returns policy

REI, a retailer of outdoors equipment and clothing, has ended its extremely generous merchandise returns policy. This policy allowed customers to return any REI product, no matter how much time had passed since the date of purchase, no matter the condition of the returned product, and with or without a receipt. REI’s generosity earned it the nickname, Return Everything, Inc. The new policy, still quite generous by most standards, allows returns that occur within one year of purchase.

A retailer that extends such generosity relies heavily on standards of social acceptability and the associated human emotion of shame in order to remain profitable. Absent sufficient adherence to some social standard that qualifies a reasonable and fair merchandise return, no retailer could possibly maintain such generosity without a method to identify and prevent serial abusers. The obvious suspects behind REI’s motivation for the change are a substantial increase in either the number of consumers willing to abuse the policy, the ability of consumers to do so, or both.

REI’s flagship Seattle retail location has a basement that is filled with returned REI merchandise, each item marked with a tag and the reason for the return. In covering REI’s policy change, The Wall Street Journal identified several amusing reasons, including:

  • “Not sexy enough” for women’s sandals meant for hiking and wading in rivers
  • “Don’t fit well” for well-worn women’s clogs
  • “Suddenly not waterproof” for an old and obviously well used rain jacket

It is possible that such returns have occurred at REI ever since the retailer opened its doors for business about 75 years ago. However, it seems unlikely that anyone who got away with such a return in the 40’s, 50’s, and 60’s would have dared brag about it, let alone mention it to someone else. They might have even felt a mild sense of shame upon subsequently encountering the employee who handled their return. Social norms may have changed enough to allow consumers from the 1970’s through 1990’s to engage in some mild bragging about successes at the REI returns counter. But their audience was likely limited to a small handful of friends.

The information age and wide-spread use of online discussion boards has changed all that. With a medium that allows anyone to say anything to a large audience under the mask of a temporary pseudonym, there is no incentive to restrain from sharing stories of successful albeit less-than-dignified merchandise returns. Furthermore, such stories told often enough begin to seem like the norm and become more and more socially acceptable. Read and hear enough accounts and you might get the feeling that that you’re stupid if you don’t join in the bargain. The customer trying to return a pair of faded and frayed hiking pants suddenly does so with confidence and a clear conscience knowing full well that lots of his discussion board pals have succeeded with far more daring attempts.

The second factor, also compliments of the information age, is the vast market for used goods that the online world has created. One climber and REI customer, Leif Karlstrom, was a seemingly pathological abuser of the REI returns policy. In October 2012, Outside magazine featured a confession from Mr. Karlstrom:

“It all started when I was broke and in college. A climbing buddy came back from China with a bunch of knockoff REI gear. We returned it fraudulently to the store in Eugene, Oregon, which gave us cash. REI didn’t even make some of the gear returned, but the store took it because the logo was on it. After that we couldn’t stop. We bought used REI at yard sales and swap meets. We went to the Metolius factory and scrounged broken climbing gear from the dumpster. And we returned it all to REI. For cash. On numerous occasions, I got a letter kicking me out of REI. To be sure, they’re a great company. I couldn’t have afforded to climb in the Bugaboos or Yosemite without them.”

Although Mr. Karlstrom’s confession did not identify such sources specifically, Craigslist, Ebay, and other similar online outlets for used equipment would be prime sources for purchasing old, worn out REI products on the cheap. Finding gear to return to REI does not require the hard labor involved with rummaging through swap meets and yard sales.

The confession includes another factor that may have influenced the policy’s fall — not being able to afford things. A major recession and sluggish, prolonged recovery can have an effect on consumer psyche. What seemed dishonest when a steady paycheck made its way to your bank account every couple of weeks may suddenly seem acceptable after several months of unemployment. Economic desperation meets changing social standards and abundant opportunity, and a long-standing retailer policy falls victim.

About the author

Eric Madsen

Mr. Madsen is a Chartered Financial Analyst (CFA) charterholder and a Manager at Fulcrum Inquiry, a finance and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting. He also holds an MBA from the UCLA Anderson School of Management and a B.S. in Economics. He conducts expert analysis in finance and economics. Mr. Madsen may be contacted at 213.787.4122 or at emadsen@fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2013/09/how-the-information-age-might-have-doomed-reis-generous-returns-policy/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>


*