Costco
Seeks
to
Lift
Margins
By
Tightening
Return
Policy
Kris
Hudson
Feb
27, 2OO7
Costco
Wholesale
Corp.
has altered
its
return
policy,
aiming
to alleviate
the
squeeze
put
on
its
profit
margins
by customers
bringing
back
electronics
for
full
refunds.
The
lssaquah,
Wash.,
retailer
yesterday
introduced
the
revamped
policy
in its
10g California
warehouses
and
plans
to
roll out
the changes
in the
rest of
its
372
U.S.
locations
over
the
next
five weeks,
Chief
Financial
Officer
Richard
Galanti
confirmed.
The change
limits
to 90
days
the
time
frame
in
which
customers
can
return
various consumer
electronics
for a
full
refund.
ln
general,
Costco
allows
its
customers
--
who
pay
annual
membership
fees
of
g50
to
$100
to shop
at
its
warehouses
--
an
unlimited
grace
period
to
return
purchases for a full
refund.
The only
exception
has been
a six-month
deadline
after
the
date of
purchase
for
returning
desktop
and
laptop
computers.
That
unlimited
time
frame still
applies
to Costco
merchandise
other
than consumer
electronics.
And electronics
goods
bought
before
the
implementation
of
the
new 90-day
policy
still
can be
returned
at any
time.
Merchandise
that
will
be
subject
to the 90-day
limit includes
televisions,
computerS,
cameras,
camcorders,
iPods, other
MP3
players
and cellphones.
ln turn, Costco
will extend
the
manufacturers'warranties
on
TVs and
computers
to
two
years
from one.
Those
products
represented
about
Soh
--
or
roughly
$3
billion
--
of
Costco's
$59
billion
in sales
for
its
fiscal
year
ended
Sept.
3.
"Our view
is,
even
with these
changes,
we still
have the best
return
policy
in
the
retail
industry,"
Mr. Galanti
said
in an
interview,
adding
that Costco
doesn't
impose a
restocking
charge
on
returned
items.
Returns
of
consumer
electronics
--
flat-panel
TVs, in
particular
--
squeezed
Costco's
profit
margins
in its latest
fiscal
year.
Costco
has
posted
strong
sales
of
the
TVs,
including a
50%
rise
in
November
at stores
open
for at
least
a
yea(,
but
many
have been
returned
as customers
encountered
difficulty
installing
them at
home. As
well,
the
policy
of
giving
a
full
refund
of the
purchase
price
allowed
for some
opportunism,
as
prices
on
flat-panel
TVs
have
fallen
precipitously
in the
past year.
J.P.
Morgan
Securities
analyst
Charles
Grom
estimates
that
returns of
consumer
electronics
pared
eight
cents
a
share
from Costco's
earnings
last
year,
when
the company
reported
earnings
of
$2.30
a share.
ln August,
Costco cited
the returns, along
with
price
reductions on furniture, in reining in
its fou
rth-quarter
earnings outlook.
"Provided
the margin
and
[earnings]
drag
caused by
the
[previously]
lenient
policy,
the change is
a
positive
development
for
the stock and will
begin to
cap
margin
dilution
going
forward,"
Mr.
Grom wrote in
a
research note
distributed to
his firm's
clients
yesterday.
Mr. Grom
owns
no
Costco stock.
J.P.
Morgan
has done business with
Costco
in
the
past
year.
Costco
has
attempted other
methods
to stem
returns
and avoid
changing
its
return
policy.
!t introduced
an
800
number
that customers
can call
to
get
answers to technical
questions
about their
purchases.
lt
also began
offering
on a
limited
scale
a third-party service for installing high-definition
TVs in
homes.
