Thursday, December 27, 2012

Returning items at stores in the US and Europe: two different equilibria?

A recent article about the policies adopted by American stores regarding returns, particularly of gifts, has gotten me thinking about the different equilbria which (I am under the impression) exist in Europe and the U.S.

Most U.S. stores have a no questions asked return policy. Subject to some limitations, you can return an item, for any reason, i.e. it doesn't have to be broken. The limitations may include things like time elapsed since purchase, whether the item has been used, etc. But policies are more lenient on items received as Christmas gifts (and here's the story that made me think of all this: Navigating Retail Holiday Return Policies. In many cases you can get your money back, in some cases you might just get credit for another purchase.

My impression is that in Europe you can return items for repair, but not for exchange.

Why are the policies different?  It seems to me that they may both be in equilibrium, so that it is hard to switch from one to another.

If an American store were to adopt a no return policy, that might seem to signal something about the unobserved quality of their goods, and it would shift sales to competitors who maintained easy return policies. And easy returns promote sales, since there is less risk in buying something, bringing it home, and seeing how it looks.

But if a European store were to adopt an easy return policy, while its competitors did not, then it would invite adverse selection of shoppers who were planning to return things (e.g. returning a gown after wearing it once). These shoppers plague American stores too, but they are spread among all stores and are a cost of doing business. But a European store that was the first to adopt an easy return policy would attract all the bad apples...

Perhaps European readers can tell me if my impressions are correct about the differences in store policies across the water...


Tim Worstall said...

It varies. Marks and Spenser was always famed for its returns policy. Very liberal, as with the US.

So much so that it was a way of cashing a check on a Saturday. But something with a check, then go upstairs and return it for cash.

Tilman Slembeck said...

I cannot tell you about "Europe" but Switzerland. Here the returning policy in all larger stores and chains is as liberal as in the U.S. Either you get your money back or a credit to buy other things as long as the item has not been used and you bring the original receipt.
More recently, an online shop for shoes and fashion ( has grown rapidly in Europe because of their liberal returning policy. They not only send you items free of charge, you may also return all items by mail free of postage. Obviously, they are trying to exploit the endowment effect. However, it is rumored that two thirds of orders are returned.
Cheers, Tilman

Unknown said...

How did you get that impression of Europe? Is it just from one country, or something you have experienced in many different countries?

In Denmark I would expect to get money back on usual Christmas gifts (e.g. books, toys, clothes) if I bring the receipt.

Anonymous said...

In Germany one can return things bought online within two weeks without telling a reason. If one buys in a (non-online) shop, one only has the right to return broken items.
But it is quite common that retailers (who compete with online shops) at least accept returns in exchange for a voucher or another item without asking for reasons. I'd be surprised to learn in a shop in Germany that I cannot exchange an item and in particular Christmas gifts. If a shop applies a strict no-returns policy it is usually a small shop that announces its policy in advance.