Retailers are making returns harder, but accountant Gene Marks says this is a mistake. In a commentary piece, he draws on a lesson from Jerry Crawford, a wholesale carpet seller who taught him about product returns.
Lesson from a carpet seller
Crawford, who died a decade ago, sold carpets wholesale from a building in south Jersey, employing about 50 people. When Marks reviewed his books, he noticed a large reserve for returns. “They’re a part of every business,” Crawford told him.
A reserve is created for potential future costs. Some businesses reserve for bad debts or old inventory, while Crawford reserved for the costs of customer returns. “There’s a cost to do this,” Crawford said. “So I make sure to build a reserve for that cost.”
Returns getting harder
According to the Wall Street Journal, many Americans are complaining that returns are getting harder, with “surprise fees, shorter return windows and more questions about their reasons for sending products back”. Some are “getting warnings that they won’t get a refund on their next return”.
Marks says Crawford would shake his head at this. While there are bad actors and returns add costs, these costs can be recouped by capturing them over a year, building a history, estimating next year’s cost, and factoring that into overhead and pricing.
Costs covered by pricing
Crawford reserved one half of 1% on each sale as a returns allowance. Instead of charging $1,000 for a roll of carpet, he charged $1,005, and customers did not notice the $5 difference. For a business, those costs add up and are covered.
Marks argues that creating obstacles and charging customers for returns only creates animosity, ruins loyalty, and results in unfavorable press coverage. He says businesses can keep customers happy and grow by not nickel-and-diming them, as Crawford, a small business owner with a high school education, understood.
