Outside the Beltway

Costco Return Policy: Too Much of A Good Thing

Richard Gardner · Tuesday, February 27, 2007 · 5 comments

Costco is limiting its greatly generous return policy by adding a time period on electronics returns, and is adding optional warranties to electronic purchases.

‘A few jerks’ prompt retailer to alter rules on electronics”

Costco Wholesale Corp.’s liberal return policy on most consumer electronic products is being reined in.
The Issaquah-based [WA] retailer has begun limiting money-back returns on TVs, computers, cameras, camcorders, iPods, MP3 players and cell phones to 90 days. Previously, there was no time limit except for personal computers, which was six months.

The change went into effect Monday in Costco’s 109 California stores and begins March 12 in all 27 Washington stores. The company has more than 500 U.S. stores.

The change was implemented because the company was losing “tens of millions of dollars” in returns, Galanti said. He declined to specify the losses.

JP Morgan Securities analyst Charles Grom estimates that returns of consumer electronics pared 8 cents a share from Costco’s earnings last year, when Costco reported earnings of $2.30 a share. Returns of consumer electronics — flat-panel televisions, in particular — put a squeeze on Costco’s profit margins in its latest fiscal year. Costco has posted strong sales of the TVs — including a 50 percent rise in November at stores open for at least a year — but it has seen many come back to its stores as customers encountered difficulty installing them at home. [ED: it takes them 3+ months to install a TV?]

Galanti said some Costco members would buy big-screen TVs and then return them months later, when newer, and less expensive models went on sale. He said the practice had become so prevalent one member recently wrote the company saying she was disappointed because she had heard Costco was going to stop its “free TV upgrade policy.”

Galanti said Costco never had such a policy.

Free TV Upgrade Policy, got to love it. What we have here is consumers using Costco as obsolescence insurance, rotating their high-end purchases to get the latest electronics, gaming the system. Totally legal, and totally legal for Costco to end the practice. However, I’m awaiting the class-action lawsuit.

While the policy is far more restrictive than before, it is far more liberal than anybody else in retail,” Weller said. “People had been returning TVs they had bought for $2,000 last year and turning around and buying the same TV for $1,200. This is patently abusive, but Costco didn’t want to change the rules for everybody just because a few jerks were, essentially, stealing”….

“Warranty does not mean we will replace it if it’s run over by your car,” Galanti said.

I’ll leave it to Steve Verdon here to put this into economic rent-seeking terms. I wouldn’t say this is stealing though as the rules allow it, but they are jerks nonetheless. However, the jerk that every year buys a big screen plasma TV before the Super Bowl, then returns it after the party is still OK under this new policy.

Disclosure: I’ve returned a quartz space heater to Costco because it broke inside the manufacturer’s warranty period — easier to go to a local Costco than deal with the manufacturer. After getting the credit, I went into the store and got a replacement, same product.