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Costco members can continue to buy LCD TVs with an unlimited return window
Costco's lenient, time-unlimited return policy remains unchanged despite speculation of revisions

When consumers think of Costco, images come to mind of bulk purchases to serve large families. Over the years, Costco has expanded its product variety to include much more than just food – the warehouse style retailer now sells fitness equipment, musical instruments, furniture, jewelry and more. Costco even sells computers, video games, televisions, MP3 players and basically much of what you would find inside a Best Buy. But when the general public is out shopping for a new plasma TV, the first place they think of is a big box retailer such as Circuit City or Future Shop.

While Costco may not be able to match the specific product selection of specialized electronics retailers, what the warehouse does offer over the competition are low prices and an unbeatable return policy on almost all of its items. For those unfamiliar with Costco’s return policy, the store hangs a large sign behind its customer service counters stating that it has a 100 percent guarantee on all of its merchandise. Customers can return any item, even if already opened and used for a full refund or exchange. What’s different, however, from other retailers offering a similar customer satisfaction policy is that there is no stated time limit on when a refund or exchange must take place.

Customers buying jumbo bags of jumbo shrimp probably put little value into a time-unlimited return policy. Potential buyers of lawn chairs may see a little more value in the policy should the piece of garden furniture suddenly shatter into splinters. But where the extremely liberal return policy is of greatest value is found in the electronics section.

“Would you like fries with that?” used to be a commonly heard phrase when ordering fast food. Today, the phrase repeated over and over again by sales associates at electronics retailers is “Would you like to buy our Product Service Plan?” which will be pushed on you relentlessly, trying to convince you that it will be the biggest mistake of your life if you walk out the door without a store-purchased extended warranty. In all fairness, the retailer and employees profit greatly from sales of extended warranties, and some consumers do appreciate the value the extra level of protection offered by the store. When a customer purchases a plasma TV from Costco, he does not have to deal with a warranty being thrust in front of him. The time-unlimited return policy effective does away with the need for an additional replacement plan.

Such a liberal policy is open for abuse by customers looking to return items that are several years old. We spoke to one Costco employee in electronics who verified with us that a small minority of customers do take advantage of the store’s policies. He relayed a story to us of a customer who returned his digital camera that had stopped working after four years of use. As per store policy, the customer was issued a full refund, which he used to purchase a new digital camera. Electronics aren’t the only thing being returned after years of a use. An eight-year old coffee maker that had broken down was exchanged for a new one. Returns don’t even have to be accompanied by the original receipt, as all purchases are tied to membership and can be brought up in Costco’s database.

Because of such behavior, some believed that Costco would soon clamp down on opportunities for abuse. Mind you, Costco is fully aware of what its return policies allow its customers to do, and since 2002 has limited returns on all desktop and notebook computers to six months from the date of purchase. Electronics share the same short lifecycle as computers, but are not restricted to the six-month policy.

During late December, the Consumerist ran an article claiming that, starting January 1, 2007, Costco will be limiting returns to 30 days due to abuse of its generous policies. After ringing in the New Year, we placed calls nationwide to Costco locations inquiring about any chance in policy. According to every customer service counter that we contacted, none said that there was any change in the store’s return policies.

The Costco.com Web site and the return policy read as it did the previous year.

We asked a Costco manager, who preferred to remain unnamed, about the report on a potential policy change. “That article seems like a lot of speculation, probably based on a combination of over-zealous employees who think they know what they are talking about and other articles out there that have misquoted various sources,” the source said. “If [our policies] were changing, then the word would spread really quickly through the company. And like I mentioned, I haven’t heard anything about it.”

In our discussion with the Costco worker, we brought up the topic of whether or not the company’s corporate management is aware of what’s happening in stores and might bring about a policy change if they took keen notice of abuse. “I have no idea what goes on behind the scenes, however if anyone just thinks about the way the company grows, the more members there are, the more sales will increase. This also means that there will be more returns too. And with more signups comes more potential for abuse. But as most people know, everything is logged/tracked in the membership system. So I would imagine that they know exactly who is abusing and who is not,” he explained. “The company continues to be run as usual. As far as I know, there haven’t been any memos sent out about the return policy changing.”

Another Costco representative who contacted DailyTech said that he could not give us specifics on how the store handles abuse of the return policy, but did say that the company still adheres to the philosophy of putting customer satisfaction first. The person we spoke to acknowledged that cases of abuse do exist, but that they are rare in occasion. “Sometimes we’ll get the odd return of a product that we haven’t carried for years. Customers are usually returning defective products and want a replacement,” he added. “It’s not often that we get someone trying to get their money back for something that’s really old.”

He stated that his store generally frowns upon non-defective TV returns that are more than a year old, but will still accept the return as per policy. “We’ll take anything back without batting an eye, except for computers,” he continued. “We don’t really like seeing TVs that still work fine come back after a year, but we’ll accept something if it’s broken.” He pointed out that far more common than abusive returns are customers who appreciate the peace of mind offered by the policy and buy with confidence.

The customer service representatives’ responses matches up well with that of Costco CEO Jim Sinegal, who believes in running a company that’s high on employee benefits and customer service. Investors in Costco’s stock have pushed for a stingier return policy, but the company has yet to budge. “We're trying to run [Costco] in a fashion that is not just going to satisfy our shareholders this year or this month,” said Sinegal, “but next year and on into the future.”

Richard Galanti, VP and CFO of Costco, said of the policy, “For every customer that abuses that privilege, there are 99 other customers that go, 'Wow.'”

Investment guru Jim Cramer wrote in his “Mad Money” feature on TheStreet.com praises for Costco, claiming the company is better run Wal-Mart. “I am convinced that Costco is the cheapest and the best-run of the big warehouse stores,” he said. Cramer specifically said that Costco should succeed at selling electronics because buyers need not worry about warranties.

Even if Costco is considering revising its return policy on certain items, it’s unlikely that the company will offer anything less than the six-month return window currently implemented on computers. Given the active nature and volatility of electronics, a six-month grace period at no additional cost would still be considered as generous.

For now, it appears that all fears of Costco changing its lenient return policy can be put to rest. Those who currently own products bought from or are thinking of buying products from Costco will continue to enjoy the return policy as stated at the time of purchase.





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