Costco Wholesale Corp. is tightening its policy on how long people can take to return electronics items, following concerns that the retailer's traditional lenience was hurting its bottom line.
Costco has until now allowed customers to return items at any time for a full refund, except for personal computers, where returns were limited to six months. But there have been concerns that the policy was proving problematic for some high-end electronics such as high-definition televisions.
Some people took televisions home and then returned them when they were disappointed because the picture didn’t look as good as it did in the store. A bigger problem for the company, however, was that some people appeared to be taking advantage of big price drops by returning an older item and then snapping up a newer, less expensive — and, in some cases, fancier — model.
"It's created an issue for returns," said Chief Financial Officer Richard Galanti.
Financial analysts, who have raised concerns about the financial repercussions of Costco's permissive policy, appeared relieved by the change.
“Provided the margin and earnings per share drag caused by the lenient policy, the change is a positive development for the stock and will begin to cap margin dilution going forward,” said JP Morgan Securities Inc. analyst Charles Grom in a research note.
The new policy, which the company quietly noted on its Web site, will give customers only 90 days to return televisions, computers, cameras, camcorders, portable music players and cell phones.
Those products represented about 5 percent — or roughly $3 billion — of Costco's $59 billion in sales from its fiscal year ended Sept. 3.
The Issaquah, Wash.-based retailer introduced the revamped policy Monday in its 109 California warehouse stores and plans to debut the changes in the rest of its 371 U.S. locations within the next five weeks, Galanti said.
To help soften the blow, Costco plans to extend the warranties on televisions and PCs for a total of two years. The company also plans to roll out a technical support line to help customers who may be returning items such as iPods because they are frustrated that they can't get them to work correctly, Galanti said.
"We think it's still the best policy out there, by a long shot," Galanti said.
Costco customers pay between $50 and $100 per year in membership fees to shop for discounted items ranging from suit jackets to dishwasher detergent.