This article is part of a larger series on Retail Management.
Writing a return policy, which sets the terms and conditions under which customers can receive a refund or exchange items they’ve purchased, is important for any retailer. These policies are meant to protect both the business and customer by keeping the terms of the transaction transparent.
This article will go over four simple steps for creating a retail return policy for your store, including deciding what type of policy you need, drafting your policy, checking state and local guidelines, and publicly posting your policy. We’ll also cover the reasons you need a retail return policy.
Step 1: Choose a Type of Return Policy
While retail return policies are nuanced, you can bucket them into one of four general groups:
- Unlimited returns
- Returnless refund
- Conditional return policy
- No returns—all sales final
Unlimited retail return policies are the most flexible type. With this refund policy, customers can pretty much return any item without hassle. The specifics may vary. Some unlimited returns policies are “no questions asked.” That means the item can be in any condition and returned for any reason—regardless of whether it was purchased directly or from a reseller. Unlimited return policies may or may not require a receipt or proof of purchase. Likewise, some unlimited return policies will take anything at any time, while others put a time limit on it.
A returnless refund is when a customer can get their money back and also keep the product they intended to return. While it certainly hits profits, some online retailers choose this model to reduce returns processing costs and other logistical challenges. A brick-and-mortar retailer may choose to offer returnless refunds for in-person purchases and returns as well.
This is a good idea if you can’t reuse or resell the returned merchandise, such as skincare products, for example. You might encourage the customer to keep the product or share it with a friend they think would enjoy it.
Conditional return policies are probably the most common and also the most diverse. As the name implies, these retail return policies have a set of conditions, or parameters, that the purchase must meet to be eligible for return. Common requirements include:
- Unopened, with tags
- Receipt included
- Purchased at full price
- Time limits
Some conditional return policies will allow for cash or credit refunds while others will issue store credit.
The most straightforward retail return policy is to not allow returns at all. An all-sales-final return policy means customers don’t have the option of a refund if they aren’t pleased with their purchase. While this is inflexible, it can be required for retailers that sell items like food or perishables.
However, you can make a caveat to these types of retail return policies to ease shoppers’ minds. For example, if the product is defective, damaged, or prematurely expired, you’ll likely want to take ownership of the mistake and offer a refund or replacement.
Step 2: Draft a Return Policy With All the Right Elements
When writing your retail refund policy, you want to be as brief as possible while still covering all your bases. Use plain language that’s approachable and easy to understand—you don’t need to sound like a lawyer.
Your retail return policy should include the following:
- What is eligible for return, including time frame and type of product; note any restricted products such as undergarments for apparel retailers
- Required documentation for returns, including receipt or proof of purchase, order number, date of purchase, payment method, and more
- How to make the return, be it in person or via mail—interestingly, in-store returns are restocked 12 to 16 days more quickly than items returned via other methods
- Condition of the item being returned and whether it needs to be unopened, unused, with tags, or meet some other requirement
- Type of refund available, noting whether it’s cash, card, store credit, or exchange; remember to note the estimated time frame of payment posting
- For returns via mail, note who pays for shipping—30% of retailers make customers pay while 70% provide some form of free return shipping—how to package the return, how to get the shipping label, where to send it, and estimated time frames
- Deductions for things like restocking, shipping, price adjustments, and payment processing fees
Step 3: Check Your State & Local Guidelines
While most states don’t have any special requirements for business return policies, some have parameters you need to keep in mind. While the list below will help, it’s always best to check with your local jurisdictions for the most up-to-date and accurate information.
- California: If you don’t accept returns, you must post that information clearly in your store. Businesses in violation of these guidelines must provide full refunds for returns made 30 days from the purchase date.
- Connecticut: Businesses must post the return policy in a “conspicuous place.” Those in violation must offer refunds for unused items returned within seven days from the purchase date. Retailers can’t refund sales tax without a purchase receipt or more than 90 days post-purchase.
- Florida: Retailers must post the return policy. Failure to do so means businesses must offer refunds for purchases up to 20 days from the transaction date.
- Hawaii: The default time frame for refund eligibility is 60 days. If your return policy is otherwise, it must be stated clearly. Store credit has to stay valid for two years from the issue date, and you can’t charge any restocking or processing fees.
- Iowa: If you don’t offer refunds or you charge a restocking fee, you must inform customers. Defective items are eligible for returns by law.
- Massachusetts: Customers must be informed of or have a chance to read the return policy prior to purchase.
- Minnesota: In-store postings with your retail return policy must use “boldface type of a minimum size of 14 points.” Retailers must offer cash refunds for any item deemed eligible for return.
- New Jersey: Merchants must inform shoppers of the return policy prior to purchase. If your return policy is 20 days or less, it must be posted “conspicuously” in your store.
- New York: If your return policy isn’t posted clearly in-store, you must offer full refunds for items returned within 30 days from the purchase date.
- Rhode Island: The default time frame for return eligibility is 10 days. If the return policy is shorter than that or all sales final, shoppers must be informed.
Step 4: Post Your Return Policy Where Customers Can Find it
Creating your retail return policy is only half the battle. You have to make sure customers and employees alike are informed about the policy so everyone is on the same page. It’s important to post your retail return policy both in-store and on your website. In some states, as mentioned above, you might even be required to post in certain locations. Here are some places to consider.
- Point of purchase: Consider posting your retail return policy around the cash wrap and point-of-sale (POS) area so that customers can see it at the time of purchase. You may want to use a shortened version or bullet points so that it’s not overwhelming.
- Receipts: It’s important to include your retail return policy with printed receipts and email receipts as well. This also makes it easy for shoppers to refer to it when considering making a return.
- Staff: Train your associates to inform customers about the return policy at checkout. It’s not a bad idea to mention it during every transaction.
- In-store signage: Consider other areas of the store where you have signage and visual merchandising. Fitting rooms are a great spot to post the return policy, especially if it’s favorable to shoppers.
- Quick response (QR) code: Instead of writing your whole retail return policy, consider using a QR code that customers can scan. This also makes it easier to update any changes to your policy, as you won’t need to reprint it for your in-store signage.
- Product page: Include a small callout and link to your retail refund policy somewhere after or near the product description, pricing information, or add-to-cart button.
- Shopping cart: If possible, customize the shopping cart page with a similar callout to your refund policy. This can help prevent shopping cart abandonment.
- Checkout page: Similarly, placing information about your return policy on the checkout page can ease any last-minute hesitations.
- Website footer: Your website footer is located at the bottom of the page, and it’s always there regardless of which page you’re on. This is a great spot to have important links to your homepage, terms and conditions, and your retail return policy.
- FAQ page: Include a dedicated section to your retail return policy on your FAQs or similar type of page.
- Live chat: If you have live chat on your website, you might have the option to offer quick links or automated responses and FAQ. Ensure your retail return policy is an asset your live chat tool and associates can share with users.
Related: Best Free Customer Service Software
Why Your Retail Return Policy Is Important
In 2020 alone, an approximate $428 billion in merchandise, or 10.6% of total retail sales, was returned. That’s $106 million for every $1 billion in sales.
Industries with the highest returns rate included auto parts, apparel, home improvement, and housewares. Approximately 70% of returns happen because the customer doesn’t like the fit or style.
But having a retail return policy doesn’t necessarily make you more vulnerable to those risks. Your return policy can protect your retail business from losing money and customers to refunds. Click through the headers below for more information on how you can benefit from a strong retail return policy.
Minimize Lost Profits
Perhaps the most straightforward reason to prioritize your retail return policy is because it can help you prevent lost profits. As many as 83% of retailers believe returns threaten profitability.
As the McKinsey report states, “In a fashion-based business, any lag time in returns can lead to significant markdowns for merchandise being resold. Brands that sell via wholesale and direct-to-consumer (DTC) channels have an added challenge: Returns from retailers often arrive all at once at the end of a season.” This leads to lower prices which eventually dilutes and cheapens your brand, and thus customers have a different perception of your brand and are less willing to pay your full prices.
When you suffer from high returns rates, you’re not only missing out on the money from those sales, but you’re also putting stress on logistics and operations. Reverse logistics creates a disjointed operational workflow, and there’s little accountability or ownership over returns. About 58% of retailers have a pain point of “lack of accountability for returns management within any single department or business unit.” This makes returns difficult to manage and optimize.
Your retail return policy can be an indirect sales tool. As many as 86% of retailers believe a lenient return policy helps increase revenue―and they’re not wrong. Many consumers check the return policy before making a purchase, and 54% of consumers say they’re not likely to make a purchase if the return policy is “poor” or “unclear.” Another 51% prefer to shop with businesses that offer the option to return to a physical store, and 44% of retailers plan to respond to this trend. Keep this in mind if you sell online in addition to your physical store.
Cultivate Customer Loyalty
Creating a positive customer experience is a great way to boost retention and loyalty—and one area to pay close attention to is the returns experience. Returns can make or break a shopper’s loyalty. Approximately 95% of consumers are less likely to shop with a brand after a negative returns experience, and nearly three-quarters feel retailers need to improve, so there’s plenty of room to grow here.
A retail return policy sets expectations so that customers know what the experience will be like before they even make a purchase. When the returns process goes smoothly, they’ll likely return for future purchases.
In addition to reclaiming lost profits to returns, an effective refund policy will help you save money in other ways as well. Some estimates say businesses can save as much as $125 billion collectively each year just by focusing on reducing returns. This is because you improve operational efficiency and reduce returns-related costs such as shipping, restocking, and labor dollars.
Empower Your Team
A documented retail return policy sets clear standards and parameters that ideally facilitate objective decision-making when it comes to refund eligibility. This standardization and transparency empowers employees because they’re well-informed about the return policy and can refer to it at any time. Plus, if a customer disagrees or pushes back, your team has something official to support their position. This also creates consistency for both employees and shoppers.
Returns are also a threat to the environment. Approximately 10% of all returns end up in a landfill. While that may not sound like much, it amounted to 5.8 billion pounds of waste in 2020 alone while returns shipping created 16 million metric tons of carbon dioxide.
Why is this important? Regardless of your environmental concern, consumers are demanding more responsibility and accountability from businesses. As many as three-quarters plan to shop more with brands that attempt to create more sustainable returns processes—and 71% would pay more for environmentally responsible return methods.
Returns also make retailers susceptible to fraud. Some figures estimate that for every $100 in refunded merchandise, $5.90 is lost to return fraud. Return fraud happens under a number of circumstances. Someone could make a purchase with the intention to return it, falsify receipts, or steal an item and return it. A well-documented retail refund policy can help mitigate some of those instances.
Your retail return policy is more than just a set of terms and conditions. It’s also a conversion and sales tool as well as a customer retention tool. Creating a well-written retail return policy improves the customer experience and protects your business from operational inefficiency and fraud, among other things. Take some time to write your retail refund policy to set your small retail store up for success.