Why You Should Be Surprised By Bed Bath & Beyond's New Return Policy

Home goods retailer Bed Bath & Beyond is initiating a new policy that may just have customers marking their purchase "return to sender."

Bed Bath & Beyond is turning miserly, and that could be bad for business, undermining the stock's hard-fought yearlong recovery.

Next month, the home goods retailer will swipe 20% from customers who return merchandise without a receipt. If Bed Bath & Beyond can't locate the purchase in its point of sale system, the retailer will give the consumer only 80% of the item's value. This change also applies to the retailer's buybuy Baby and Harmon Face Values concepts.

It's a big change for the company, which until now has been known for its fairly liberal and customer-friendly return policy that gave store credit or an exchange on returns without a receipt.

The customer is always right

While some companies such as Comcast seemingly go out of their way to insult customers and provide subpar service, damaging their reputations in the process, others bend over backward to please their customers. Nordstrom , for example, has become almost synonymous with excellent service.

Most other businesses fall in between the two extremes. But because Bed Bath & Beyond is probably viewed closer to Nordstrom than to Comcast when it comes to customer service, this new return policy is curious.

Shopping website Racked was first alerted to the change earlier this week and confirmed with the retailer that the new policy will go into effect next month. Considering Bed Bath & Beyond has a seemingly never-ending 20% off coupon policy, it's interesting that the retailer chose that percentage as its "restocking fee."

No doubt some customers abuse the current policy, but being more lenient on returns still makes good business sense as it creates a level of comfort about shopping at a store without fear of being stuck with an unwanted item.

Bed Bath & Beyond has long been viewed as consumer friendly, such as with its seemingly never-ending discount coupons, so its new return policy is a step backwards.

The rule of unintended consequences

Although it might seem counterintuitive, a study published in the Journal of Consumer Psychology found that stricter return policies actually increase the likelihood of returns by all customers.

Of course, there can be significant costs associated with returns. The National Retail Federation estimated returns fraud and abuse cost the retail industry between $10.8 billion and $17.6 billion in 2014, a 20% increase from the prior year. Yet fraud represented only about 3.4% of the total number of returns made, according to the trade group.

In last year's annual filing with the SEC, Bed Bath & Beyond reported it allowed for some $700 million in sales returns and allowances in the preceding fiscal year, a seemingly high 6% of its $11.5 billion in annual revenue: almost double what the NRF says is the industry average.

However, Bed Bath & Beyond doesn't actually lose all that money. It can resell a lot of the returned goods or send them back to the manufacturer for a credit. So the actual cost incurred by the company is probably pretty low overall, which raises the question: Is it really worth it to make the change?

Point of no return

Certainly Bed Bath & Beyond isn't the only retailer tightening its return policies, and it's still better than some like lululemon athletica , which has a super-strict 14-day return policy -- even for gift purchases -- and will only accept items in pristine condition. Best Buy gives you just 15 days to return an item, and only with a receipt (up to 45 days, though, if you're an Elite member). Barnes & Noble lets you read a book for 14 days and still get a refund: not too bad, considering the product. Wal-Mart , on the other hand, offers a 90-day return policy on most items, though like Best Buy it limits many electronics goods to just 15 days.

Others, though, are going in the opposite direction by liberalizing their policies. Target just announced it would extend its return policy from 90 days to one year for all 32 of its store brands and exclusive merchandise, representing some 70,000 items.

A return to stilted growth?

Bed Bath & Beyond has been struggling to move the needle on revenue and profit growth recently. However, its stock has started to recover after falling roughly 30% in the first half of 2014 due to disappointing earnings growth.

Its stock dropped again this past January after the company again reported weak fiscal third-quarter results, and maybe the policy change is just one more piece in a broader cost-cutting initiative. But as academia and experience suggest, taking 20% from its shoppers' purchases might not be good for the customer or for Bed Bath & Beyond.

1 great stock to buy for 2015 and beyond

2015 is shaping up to be another great year for stocks. But if you want to make sure that 2015 is your best investing year ever, you need to know where to start. That's why The Motley Fool's chief investment officer just published a brand-new research report that reveals his top stock for the year ahead. To get the full story on this year's stock -- completely free -- simply click here .

The article Why You Should Be Surprised By Bed Bath & Beyond's New Return Policy originally appeared on

FollowRich Duprey 's coverage of all theretailing industry'smost important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond, Lululemon Athletica, and Nordstrom. The Motley Fool owns shares of Barnes & Noble. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More