The New Yorker: The History of Refunds

I recently came across an insightful article from The New Yorker. David Owen did an awesome job covering all things returns and refunds. So, we’ll be talking about this article over the next few posts. Let’s go back in time and start with the roots of refunds.

Refunds trace their roots back to the early 20th century when retailers began to recognize the importance of customer satisfaction. The concept of accepting returns and offering refunds was a novel idea at the time. It aimed to build trust between consumers and merchants, laying the foundation for today’s refund policies.

The Beginning

James Cash Penney is considered the inventor of refunds. He moved to Wyoming in 1902 and became a one-third owner of Golden Rule, a local general store. Eventually, he bought his partners out and expanded the company to open more stores. In 1913, he renamed all his stores under his own name: J.C. Penney. He accepted returns of any kind with no questions asked.

A Continuation

A young man named Sam Walton worked at J.C. Penney for some time. While he went on to manage some other business ventures, he founded his own store 22 years after working at JCP. He named the store Walmart. He took note of J.C. Penney’s return policy and implemented something similar in his own store (which is still in effect today). Walton’s philosophy was simple: “The customer is always right.” He believed that by offering easy returns and refunds, he could win over customers and build a retail empire. (And he did)

Chuck Johnson, former Senior Director of Returns at Walmart, told Owen that Walton was incredibly customer-oriented. He went on to say “People would bring in stuff that was clearly from Sears, and we would take it back, because we wanted a happy customer.” Walmart also implemented a policy in which they pick up returns at buyers’ homes free of charge.

Transition Into Digital Returns

Modern-day refunds are widely regarded to have been started by Zappo’s late-CEO Tony Hsieh. He’s regarded as one of the most legendary modern businessmen, and his return policy says all you need to know. (1) free returns (2) up to a year after purchase (3) encouraged customers to order different styles and sizes. Their revenues were 6x within four years.

After seeing this success, Amazon launched a new site called Endless, whose goal was to mimic Zappos in terms of merchandise and return policies. However, this didn’t take off as expected; Amazon ended up acquiring Zappos for $1.2 billion.

And that brings us to the present day. You can see that returns and refunds have come far over the past decades, but the principle is unchanged. With instant refunds on the rise, it’s only a matter of time until another chapter is added to this history.