My customers are abusing my return policy! How should I respond?

What is it about?

Sometimes consumers purchase an item without ever intending to keep it. Essentially, they exploit a retailer's generous return policy to "rent" the item for short-term use. Such opportunistic behavior is often called "wardrobing," due to its prevalence in the apparel sector. We show how a retailer should react to such behavior in terms of pricing and restocking fees in order to maximize profits. The appropriate reaction depends critically on how many consumers are willing to consider opportunistic returns, as well as how much value can be extracted from the product during the allowable return time window.

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Why is it important?

Opportunistic return behavior, or "wardrobing," is prevalent in many retail contexts, from televisions and camcorders to evening gowns and snow boots. Stricter return policies are a potential response, but these can scare off honest customers who are truly unsure if they will like the product. This research models this tradeoff and provides analytical insights into a retailer's optimal response to wardrobing.