Restock Fees - Reasons Why Companies Have Added Them
In business everything flows down to the bottom line. Which means that there is a cost associated with everything.
While it used to be that the majority of companies would accept returns with no restock fees of any kind, the skyrocketing costs of returns forced many businesses to implement some sort of restock fees to help cover the costs.
Many customers do not understand restock fees. They often think it is a company’s attempt to squeeze every last penny out of them. While this may be the case with some companies, most businesses are just trying to cover their expenses.
What expenses you ask? Let me tell you.
1. Transaction fees charged by credit card and clearing houses. Depending on the card and the clearing house used, the transaction fees can be as high as 5%. Which means the company, not the customer, pays at the very beginning of the transaction. The company also pays on the back end when a credit is applied to a card. Every transaction, whether a purchase or a refund, is considered a chargeable transaction.
As credit card companies struggle with the rising cost of defaults, they pass the costs onto their business customers who have to eat them or pass them to their customers.
2. Processing Costs. Besides the real cost of the credit card transaction fees, there is human costs to process returns. Humans are not cheap. At least the HairBoutique.com humans are not. They all get competitive wages including benefits, which all adds up.
At HairBoutique.com the processing of returns move along the following path:
A. An return authorization (RMA#) is requested by a customer either through their account (if they created one) or via email to Customer Care. Some customers call on the phone which actually slows down the process since operators have to take the calls and this even adds to the cost of returns. Email or back office requests are handled 50% faster as an FYI for people who return items on a regular basis.
B. The RMA request is acknowledged by customer care email and/or phone and then checked for validity by looking up the original order in the store database. Some items may be marked All Sales Final due to being on sale or for other reasons that are too long to go into here. There is also a limit on how long returns can be requested after ship date. This is industry standard for all types of business. Even HairBoutique.com has limits on how long they can respond to their suppliers when items arrive damaged or items are missing. In many cases with Hairboutique.com suppliers all sales are final as well.
C. Once it has been determined that the RMA request is valid, the customer is assigned an RMA# to place on the outside of the return box. They are also emailed with return shipping instructions and informed of our standard restock fee with the option to waive the fee for store credit. We offer this option since store credit avoids the return Credit Card fees. The RMA# is entered into a database file with a timestamp since the returns must be received in a timely manner.
D. Once the Return is received at the HairBoutique.com warehouse, it has to be checked in. If there is no RMA# on the box, it is rejected by the receiving department and returned to the sender. If there is a visible RMA#, the box is checked off against the RMA pending database and placed in the Returns Department.
E. The Return clerk opens the box and checks to make sure the items can be resold as usused/brand new. Not all returns pass the test which is another story for another blog day.
F. Once the Return is approved it must be added back into the store inventory and the store software. A human physically has to retag the item and walk it to the location in the warehouse it belongs so that the pickers can find it again.
G. The customer is given credit to their card, minus restock fee or they receive full store credit, without any restock fee. The credits, are manually applied by the Return Clerk either to the actual credit card company or to the HairBoutique.com store under the customer’s account.
H. The customer is notified that the appropriate credit has been applied including the transaction ID info if the credit was applied to the credit card company.
As I have mentioned before, all HairBoutique.com employees are paid to work for the company and all make more than minimum wage with benefits.
We have timed all the various steps it takes to process returns and depending on a variety of factors including the number of items returned, the condition of the items returned and the amount of correspondence required with either the credit agencies or customers, a return can take a minimum of 30 minutes (on the low side) to up to 2 hours (on the high side).
If you add up the human processing time, the costs of the Credit Card transaction fees and any original shipping that was paid for by HairBoutique.com that is not ever recovered, returns are very costly. This does not take into consideration returns that are not eligible (human hair found in combs, brushes, rollers, accessories…etc., or items that have been obviously worn or used).
Yes, there is a cost of doing business involved with returns (original fulfillment) but unlike some unnamed luxury retail establishments that charge very high prices, the Hairboutique.com model is designed to offer competitive pricing and free shipping over $50.00. This means that the escalating costs of returns require the dreaded restock fees or else I have to pass my costs to all my customers - which I refuse to do.
One way we try to compromise is to offer full store credit instead of restock fees. Even though the return still costs us money, a store credit tells us that it is a long term customer that will shop again and we are willing to make that investment in them.  Many companies are the same way and will gladly offer store credit without fees but will charge restock fees on credit card refunds.
Restock fees vary in percentage. Our goal at HairBoutique.com is to cover the cost of the return. Many companies charge fees much higher than we do to provide a cushion for other losses. Restock fees of 25% are not uncommon in large name retail establishments.
In the early days of HairBoutique.com I resisted charging any return fees of any kind but the bigger we grew the more difficult it was to absorb return costs and I definitely did not want to pass them off to all my customers. Just those that wanted to do returns seemed fair.
Not all companies require restock fees although it is becoming rare that companies don’t. Usually the fees are listed in the fine print in the Return Policy section on a company website or on the bottom of your invoice. When in doubt….read carefully.
The next time you get ready to return an item and are informed of a restock fee, keep in mind that the majority of companies that require a restock fee are doing so because it is the cost of the return. Also, some companies will not accept returns under any circumstances to avoid the hassles and expense. One hair accessory designer in New York has a post on her website that she will not accept any returns - period.
Consider the fact that a company is allowing you to return items as just another service that is available to you and may not be available with other companies. Some companies are actually starting to limit the total number of returns they will accept on an annual basis from customers. They manage that by swiping the customer’s license or credit card.
Finally, if you must return items, keep in mind that there is most likely a restock fee but it might be waived for store credit or other options. Be willing to think outside the box and consider re-gifting, trading on an online swap forum or stop by your favorite Sell It On eBay store.
If anyone has better suggestions, I am all ears and would love to hear your feedback.
Tags: Business Costs, Cost of Business, Credit Cards, Customer Service, Operating Procedures, Restocking Fees, Return Procedures, Returns
January 27th, 2009 at 4:13 am
This is some serious matter you are discussing… I read about it in the past but it’s first time for me to see such a comprehensive guide. Thanks
April 26th, 2009 at 6:16 am
Another interesting article from your blog
When will it stop….hopefully never
June 5th, 2009 at 2:40 pm
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.