Canadian Capitalist loves Costco. In a recent post, he tells a story about how Costco gave him a cash refund on a pressure washer he purchased 15 months ago. This is definitely a generous return policy.

Costco has an advantage over other retailers, a point CC made in the comments. Because you have to present your membership card with every purchase, the company has record of every single purchase you’ve ever made. They were able to look back in their records, verify that CC did in fact purchase the pressure washer there, and ensure they were giving a refund on their product.

Because of this tracking, Costco can accept returns without a receipt as well, since they don’t need it to verify the purchase. This gives the wholesaler a big advantage on just about every other retailer.

My question is this: is this a much too generous return policy?

This is heads and shoulders above any other retailer’s return policy. Most retailers require a receipt and an unopened product. Some will return an opened item, it seems like every store has different standards of whether they’ll return a product. I’m sure each and every one of you has a story or two of the same store having different standards for returns that differed from employee to employee.

Every time a store takes back an opened product, that product goes straight to the garbage. It can’t be resold even at a discount, nor can it even be donated back to the food bank. The store is stuck eating the cost associated with it.

Retail is a high volume, low margin business. Every time a retailer takes back your opened item, they eat the whole cost of that item. If a store makes 2% net margins, it has to make $1000 in sales to make back the $20 they just gave you back for your item.

The funny part is that CC admits he took his pressure washer back fully expecting to get nothing back for it. He realized that taking back an item that had been used quite a few times was a long shot. I hold nothing against the guy for trying, and it worked out quite well for him. Where’s the proverbial line in the sand?

I don’t think it’s unreasonable to have a return policy of a maximum of 90 days after purchase. How long does it take you to figure out something is a dud? If I’m a shareholder of a retailer, I don’t really want them to go nuts on giving refunds. Sure, be competitive, but don’t throw money away by being overly generous.

Readers, what do you think? Does Costco have it right? Or should retailers tighten the reins a bit?

Tell everyone, yo!