Why companies love store credit instead of refunds

The product comes back. The money does not.

Say you buy something for $150 and return it a week later.

If the retailer puts $150 back onto your card, the sale is basically finished.

You have your money again.

You can spend it with the same retailer, one of its competitors, at dinner that night or not spend it at all.

The retailer has lost the sale and lost control of the $150.

Store credit changes that.

You still have $150 of value, but it only works in one place.

To actually use it, you have to shop there again.

The retailer gets the product back without sending the cash back out with it.

Then it creates another sale

The awkward thing about store credit is finding something that costs exactly the amount sitting there.

If you have $150 of credit and the thing you actually want costs $179, you are probably not abandoning the purchase because you need another $29.

You pay the difference.

The return has now created another transaction and another $29 of spending.

The opposite can happen too.

Maybe you spend $137 and leave $13 sitting there.

You might come back for it later.

You might forget about it.

Either way, the original cash is still with the retailer.

It is the same basic reason stored value can be so useful to businesses generally. Once money has been turned into something that only works with one company, the next spending decision has already been narrowed down for you.

And it still feels like money

This is probably the cleverest part.

You returned a $150 item.

You received $150 back.

Everything feels fairly square.

Except the $150 you got back is not really $150 in the normal sense anymore.

You cannot take it across the road.

You cannot transfer it back into your bank account.

You cannot decide next week that you would rather spend it somewhere else.

It is $150 inside that company’s own little economy.

That is a much better version of $150 for the business issuing it.

There is a limit to it

A retailer obviously cannot replace every refund with store credit just because it prefers the economics.

Under the Australian Consumer Law, consumer guarantees can give you the right to a refund or replacement when a product has a major problem.

In that situation, the ACCC says the consumer gets to choose between a refund and replacement.

A store cannot wipe that away with its own returns policy or insist that store credit is good enough.

Change-of-mind returns are different.

Businesses generally do not have to accept a return simply because you changed your mind, so they can put conditions around a voluntary change-of-mind policy.

That is where store credit becomes especially useful.

The business can give the customer more flexibility than the law requires without necessarily giving the cash back.

It can make the first purchase easier too

A decent returns policy can make people more comfortable buying something in the first place.

Especially online.

You might be more willing to order clothes you have not tried on if you know there is some way out if they do not fit.

The retailer wants that confidence.

It just does not necessarily want to hand the cash back every time somebody changes their mind.

Store credit is a pretty convenient middle ground.

You can return it.

You have not completely lost the value.

But you are still our customer.

A cash refund ends the transaction.

Store credit keeps it going.