This article is part of a larger series on Retail Management.
Your return policy isn’t the first thing that comes to mind when starting a retail business, but it’s certainly important. 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.
If you prefer to simply copy one of our sample policies as a foundation for your own, jump down to that section of our article.
While retail return policies are nuanced, you can bucket them into one of four general groups:
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.
REI is an outdoor retailer with a well-known unlimited return policy. It originally had no time limit on the return window but has since changed that; all purchases must now be returned within one year to be eligible for a full refund. (Source: REI)
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:
Some conditional return policies will allow for cash or credit refunds while others will issue store credit.
Pet care brand Rowan outlines its terms and conditions for refunds, which require proof of purchase and an explanation for the reason for the return within 30 days. (Source: Rowan)
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.
Soap brand Mikokos has an all sales final policy, but does take ownership of errors on its part. (Source: Mikokos)
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:
Portland-based skincare brand Blendily has two different processes for returns and exchanges, so it explains the difference between the two so shoppers can see what steps to take easily. (Source: Blendily)
Nordstrom has a robust and detailed retail and refund policy page on its website. It outlines all the return methods and requirements and goes on to list a dedicated frequently asked questions (FAQs) section just about returns. (Source: Nordstrom)
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.
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.
Apparel brand OMA Designs has an ever-present “Refund Policy” link in its website footer. (Source: OMA Designs)
If you need a sample return policy to use as a base as you draft your own, you can use the free templates below. Just copy and paste and update any necessary information.
The unlimited returns template should promote the customer-friendly policy as well as offer the steps required to make a return.
We have a 100% satisfaction guarantee. If you’re unhappy with your purchase from [BUSINESS] for any reason whatsoever, you can return it for a full refund—no questions asked.
Then let customers know how to go about the return.
If you need to make a return, you can [OFFER RETURN METHODS—e.g., BRING YOUR PURCHASE TO YOUR CLOSEST RETAIL LOCATION; MAIL YOUR PURCHASE BACK IN THE SAME BOX USING THE PREPAID LABEL THAT CAME WITH YOUR ORDER; EMAIL US AT HELLO@WEBSITE.COM; ETC.) Please expect your refund to take up to [PERIOD OF TIME] to hit your bank account.
It takes three to seven days for customers to receive refunds from 60% of retailers.
You can use similar copy to what we’ve drafted above for the unlimited return policy. Start out by describing your policy and any requirements:
If you’re unhappy with your purchase from [BUSINESS], you can request a full refund within [X] days of the purchase date. You can do so by [DESCRIBE HOW TO REQUEST THE REFUND].
Don’t worry about sending the [PRODUCT] back—it’s on us. We hope you’ll give us another shot in the future. In the meantime, feel free to gift the [PRODUCT] to a friend or pass it along to someone who might need or love it!
Your conditional return policy should clearly outline all stipulations. You’ll want to include a description of your return policy, the various conditions to be eligible for a refund, and how to go about it.
All returns and exchanges must be made within [X] days of purchase. [PRODUCT TYPE/NAME] are ineligible for returns or exchanges. All returns must [DESCRIBE THE PRODUCT CONDITION; DOES IT NEED TO HAVE TAGS, HAVE THE RECEIPT, ETC.]. To process your return, [DESCRIBE HOW TO MAKE A RETURN].
At minimum, you’ll want to use some version of the following:
At [BUSINESS NAME], no refunds or exchanges are accepted. All sales are final.You also have the option to expand on your reasoning for the no return policy. You can use something like this:
We stand confidently behind our products. Unfortunately, we cannot accept returns because [REASON]. We hope you’ll love your [PRODUCT] as much as we do.
You can also offer an option to get in touch or reach out if there’s a defect or issue with an order. For example, you should make an exception to the “no refunds” policy if a customer never received their order.
If you have an issue with your order or there’s a defect with your product, you can reach out to us at [CONTACT METHOD(S)].
There are many reasons why more than 35% of retailers want to focus on reducing returns to boost profits and customer satisfaction. It’s expected that $816 billion in merchandise will be returned in 2022 alone. That’s nearly double the approximate $428 billion in 2020.
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 ProfitsPerhaps 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.
Operational EfficiencyWhen 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.
Drive SalesYour 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 LoyaltyCreating 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.
Plus, frequent returners are often loyal shoppers. Nearly 45% of retailers find that customers who make lots of returns generally have higher lifetime value (LTV).
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.
Save MoneyIn 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 TeamA 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 allows for effective retail store management.
It 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.
Improve SustainabilityReturns 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 2.63 billion pounds of waste in 2020 alone while returns shipping created 16 million metric tons of carbon dioxide. Not to mention the 16 million metric tons of carbon dioxide these emissions from transporting returns release into the atmosphere.
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.
Prevent FraudReturns also make retailers susceptible to fraud. Some figures estimate that retailers lose $10.40 to return fraud for every $100 in returned merchandise.
Return fraud happens under a number of circumstances. Half of retailers have fallen victim to wardrobing, which is when a business processes returns of used, non-defective merchandise, 41.4% have processed returns of shoplifted or stolen merchandise, and 20% have been victimized by organized retail crime.
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.
