5 Retailers That Offer Excellent Return Policies

Excellent return policies lead to happy customers, which then leads to lots of repeat business. This, in turn, is very good for investors.

Jan 4, 2014 at 10:00AM

Today's consumer is demanding. That's the way it should be. In the past, retailers would get away with a lot of tricks, which would lead to money being taken out of your pocket. Today, consumers are much more aware of what's going on. They're not going to fall for tricks, and they're going to look for the best deals possible in every way possible. The tables have turned, and the consumer is now in control. 

In today's world, a retailer must offer the best customer service possible. Otherwise, it will fall well behind its peers. GoBankingRates.com recently investigated the top retailers with the best return policies, which is an important aspect of customer service. Consumers want to feel comfortable knowing that once they buy an item, they're not locked into the purchase if it turns out to be the wrong item needed or wanted.

We'll take a look at five retailers that made the top 10, four of which are likely to offer good investment potential going forward. 

At the peak
Costco Wholesale (NASDAQ:COST) came in at the very top of the list. This shouldn't come as much of a surprise. Costco has pleased its customers as well as its investors over the years. Companies like Costco continue to win because management finds ways to match consumer demands. 

Just like most retailers with quality return policies, you can return an item at a store whether it was purchased online or in-store. If you have a receipt, then the process is going to be extremely easy. If you don't have a receipt, then your membership number can still be used for a return. That's one difference between Costco and other retailers when it comes to return policies, but what really stands out is that there's no time limit on returns. The only instance in which time plays a role is with electronics: you have 90 days to return an electronic item.

Costco's return policies might not drive many new customers to its stores, but this policy is highly likely to keep its current customers from going to a competitor. 

A customer-friendly high-end retailer
Nordstrom (NYSE:JWN) comes in at No. 2 on this list, which also isn't surprising. Nordstrom is unique in that it's a high-end store without being pretentious. The company prides itself in being welcoming to all customers and potential customers, and it has a goal of getting to know its customers on a personal level. That being the case, it makes sense that Nordstrom offers a customer-friendly return policy.

Nordstrom's returns are done on a case-by-case basis. However, if you're looking for some concrete information on returns, then all you need to know is that as long as the item doesn't show excessive wear, it should be returnable. You will receive a cash refund if you can show a valid ID. That shouldn't be too difficult. 

The best of the rest
Wal-Mart Stores (NYSE:WMT) finds itself at No. 5 on this list, and it's well known for having a good return policy. That's because Wal-Mart offers an even exchange on all items without a receipt. If you have a receipt, then you can receive a refund or exchange within 90 days of your purchase.

On the other hand, electronic items must be returned within 15 to 30 days, depending on the item. Therefore, while you might find the best prices for electronics at Wal-Mart, you should only shop for electronics there if you know exactly what you want. 

At Home Depot (NYSE:HD), which comes in at No. 7, you can return an item you purchased in-store or online within 90 days, even without a receipt. If you don't have a receipt, the only negative is that you will receive the lowest selling price in that time frame, in store credit. But that's widely seen as a fair policy.

It should also be noted that Home Depot is the fastest-growing retailer on this list in the past year, seeing top-line growth of 4.3% over the past 12 months. This might not be a high number, but these are all mature companies that grow their top lines at a methodical pace and generate a lot of cash flow, which leads to safe and secure dividend payments and stock buybacks. 

Target (NYSE:TGT) also allows returns at its stores whether the item was purchased online or in-store. Even if you don't have a receipt, most items can be returned for up to 90 days, as long as they're unopened. However, you only have 30 days to return electronic items. Online returns ship for free if you use a prepaid label from the company website. 

I'm not a big returner, but I have returned several items at Target over the years, and I have never had a problem. Target is one of the top retailers in the world. But the recent security breach is likely to lead to a loss of trust for many of the company's customers (including myself), which limits the company's upside potential, at least for the near term. Given this, it would make little sense to invest in Target when Wal-Mart is a viable option.

The bottom line
If you're going to invest in retail, then you should strongly consider going with a company that is ahead of industry trends. A top-notch return policy is a key aspect. Costco is the clear leader in this regard, and Nordstrom is a close second. Home Depot is the fastest-growing company of the bunch in the past year. As long as the housing market holds its own, Home Depot should remain a top-notch investment option. Wal-Mart has only grown its top line about 1% over the past 12 months, but its 2.4% dividend yield is very safe. As far as Target goes, due to the recent security breach, downside risk is likely to outweigh upside potential at the moment. 

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Fool contributor Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale and Home Depot. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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