Real Issues. Real Answers. Restocking fees

Real Issues. Real Answers. Restocking Fees.

For years, many LBM companies charged restocking fees on returned material as a matter of course. And why not? After all, it takes time for team members to return products to inventory, and as we know, time is money. Plus, our margins are thin enough, as it is. Then again, competitive pressures and the desire to keep customers happy can lead to reducing or waiving these fees, sometimes on a case-by-case basis. As you’ll see from the wildly varied results of this month’s reader survey, it’s clear that there’s no one-size-fits-all solution.

This month’s question was suggested by a reader in the upper Midwest, who wrote simply, “Restocking fees. To charge or not to charge?” After an insightful phone conversation with the dealer, we took that topic and built a brief survey around it. Judging by the fact that well over 200 readers took time to weigh in, it’s clear that this is one of those universal challenges that many dealers wrestle with, and that has no simple answer.

If you’re among those who responded to the survey, which was sent to readers who’ve opted-in to receive our email communications, thank you for joining the conversation. If you’d like to participate in future surveys, just send a quick email to operations@LBMJournal.com, and we’ll make sure you’re added.

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Question 1: Does your company charge restocking fees on returned items?

Restocking Fees real issues

As the chart shows, a solid majority, nearly three in four respondents (74%) report charging restocking fees on some returns. Those who marked “Yes, on all returns” and “No, we don’t charge restocking fees” effectively split the difference, with 14% and 12% of the respondents, respectively. Here are some representative comments to this question.

“Yes on special order items only that are returnable to the vendor. No on stock material.”

“We are working on this currently. We have always charged 20% if we send out a truck, or no charge if they bring the material back to our store. We do not charge to a select group of folks who understand the cost associated with a return. If they keep returns low under 3-5% of purchases, they will not incur a charge.”

“We have never charged a restock charge on stock returns unless someone canceled an order that we built and had delivered to the jobsite.”

“The question of which customers warrant restocking charges is simply based on the ‘quality’ of the customer. How important is this customer to your business? Is the customer loyal to your business? Is their volume and margin really valuable to your company? Are they 90% ‘trouble free?’ Will you gain, or strengthen your relationship with this customer, if they know that you’re taking exceptional steps to further gain their confidence, and additional business? All are valid questions which should take all of the guesswork out of making your restocking fee decision.”

“No return charges on stock items unless extraordinarily egregious behavior on the part of the customer.”

“We have discussed it, but in our small community it doesn’t work.”

“We say we do, but in reality, we very seldom charge. Our builder customers understand that we do not give credit unless product is perfect to restock and resell. We photograph any material not credited, and then if we can clean it up, we restock at zero cost, or it goes in the damaged goods stack for greatly discounted sale (which is popular with our customers who own rental properties). Not a perfect method but we hope to cover the cost of the process with sales.”

“Our policy is to charge on all, but we rarely do. We do always charge when we have to return product to a vendor to make sure we do not lose money.”

“Large customers typically have the fee waived.”

“We want to. However, we are struggling to introduce it into the market as none of our competitors do either.”

“All of our customers are automatically charged a restock fee on returns. We can adjust the percentage, or remove it entirely, depending on the situation.”

“As a rule, we charge a 10% restock on all items returned. Of course there are exceptions to every rule but most people don’t have an issue with it.”

“We don’t charge a fee on stock items if returned within 30 days. After that, there is a 15% charge. For special orders, if we can return them, we pass along whatever the supplier charges us.”

“If the customer brings the material back himself, or if we make a mistake, he gets full credit. If we have to pick it up on our trucks, he gets charged with a restock fee.”

Question 2: How would you advise this dealer?

“We’ve always charged a modest restocking fee, and for years that policy was carved in stone. Today, it’s evolved to the point where our salespeople have the authority to reduce, or completely waive, these restocking fees. In my view, the lack of a restocking fee effectively encourages returns. Plus, the loss of that revenue, combined with our already tight margins, is just one more hit on our bottom line. Then again, we’re in a competitive market, and can’t afford to lose customers. How do other dealers handle this?”

“We maintain a ‘no restock fee’ list which builders can be a part of. Although it is somewhat arbitrary, it is usually offered to builders with large volumes and a long history of business and loyalty with our company.”

“No matter the excuse by sales, or the excuse we place on ourselves as dealers, no ‘skin in the game’ by the contractor creates a number of issues. Good contractors (the ones you want to do business with) will understand the cost of labor.”

“Admittedly, this is something that my company does not do, but something that I strongly suggest. My advice is to waive the re-stock fee only if the builder performs their own take-off. In my experience, most problems in our industry are the direct result of the migration away from builders creating their own material lists in an effort for dealers to have a ‘competitive advantage.’ When a builder sits down with her engineered, permitted, fully specified and detailed set of plans and creates her own material lists, she is forced to build that project in her mind from the bottom up and sequentially answer many questions that will potentially arise in the field. This single act will automatically eliminate a large percentage of all credit returns with most builders. I suggest an emphasis in our industry to incentivize builders to migrate back to creating their own material lists. This one cultural emphasis will be the single largest cure to our credit return problems and because of that, will help with many other issues such as labor, overtime, AR, available sales resources, etc.”

“Educate the customer, restocking fees reduce overall costs. How? The small amount they pay to return items is significantly less than the cost of running out of items on the jobsite. They can simply order a little extra and know that they can bring back what you don’t use, and pay a small fee. If restocking fees cause a huge problem, and you have a significant volume of returns, raise your prices and advertise no return fees.”

“I believe that in the competitive market today, with mass merchants who allow returns without reason or even a receipt, you have to weigh the pros and cons of restock charges. It becomes really complicated with other suppliers willing to offer returns to a large customer in order to steal the business from you. I feel that salespeople understand the relationship better than management in most cases. Some customers are very sensitive to a restocking fee. I recommend giving your salespeople the ability to know the customer and manage these situations.”

“If your customer was used to the modest restocking fee why did you change the policy? We are almost 100% pro, so we determine the quantities. Fortunately our software allows us to analyze what is being returned, and by who. We constantly work on reducing returns with more accurate quotes and shipping.”

“I would say look at the numbers. Maybe raise prices on certain customers to compensate for their penchant for returns.”

“We charge a 25% restocking fee on all special order items, if they are returnable. This covers our cost because the wholesaler charges us a fee up to 25%. As far as stock items, we do not charge a fee.”

“Communicate the costs involved of restocking material to your salespeople first to get their buy-in. Management should have overall authority on restocking fees, not salespeople. Also communicate the restocking fee policy with your customers and sit down personally with key customers or those that may buck the most. Discuss ways in which customers and salespeople can work together to minimize fees and costs for all parties.”

“We haven’t ever really charged a restock fee on the items where we’ve figured the quantities. Try to figure your jobs tighter or just a little heavy. That way you don’t have all the small loads that nickel and dime you to death and when you pick up the material for returns, you know you didn’t have all the extra deliveries in between. If it’s a special order and our vendor charges us a restocking fee, we charge the customer a restocking fee.”

“With us, it varies according to the amount and who the customer is. Our GM makes all decisions, not sales. Also, any return on our vehicle gets a fuel surcharge of $19.95 deducted from the return.”

“Stick with the policy. On rare occasions a fee can be waived.”

“Returns are expensive and our return charge is non-negotiable. High volume A and B accounts have few if any returns, it is by far the marginal accounts that have the most returns.”

“A friendly return policy is critical for customer relations. Sam Walton said if a customer’s boots fail, give them a new pair and a pair of socks. It built Walmart!”

“From what I see it’s on a case-by-case. I have a customer that will buy a whole box of soffit and fascia just so it doesn’t get scratched or dented between the store and the jobsite. He returns the rest still in a box where they are resellable. There are some guys who try giving you junk back. That’s where you have to draw the line.”

“Large order, small return…waive the restock fee. Special order, non-stock item…apply the fee. Clearly state the acceptable condition of material that can be returned and put a time limit on the return from date of invoice. Manager approval on all exceptions to the fee.”

“I would charge whatever the restocking fee is from the wholesaler plus 5%. As far as items stocked in the store, unless it’s a huge problem I would not charge a fee or let the salespeople decide how much and if there should  be a restocking fee.”

“Any returns should be deducted from the salesperson’s sales, and reduce commissions. If it is a sound business decision to accept the return, with or without a restocking fee, then go ahead and do it.”

“You must have a firm policy in place to charge for returns so that you can make exceptions as needed. A ‘no restocking fee for returns’ policy invites undisciplined purchasing and selling, and encourages your customers to effectively re-grade your lumber shipments on the jobsite.”

“We would love to charge a restocking fee, but no major lumberyard around has ever done it. It’s an expense we have always eaten.”

“Extra fees will protect your bottom line in the short term. Your competition that doesn’t charge a fee, yet sells at the same price, will keep all the business eventually as your customers discover this. Simply protect yourself on special order returns but waive general merchandise restocking fees.”

“We handle it like most companies would in these days I imagine, which is on a case by case basis. There are many variables when dealing with the dreaded restocking fees, such as: time and date of purchase; material damage; amount of material being returned; customer return or pick up; type of material being returned; status of customer’s account; customer loyalty; location if to be picked up (at suppliers convenience); and the list goes on. On every ticket or invoice have it written (all returns must be accompanied by this invoice), and is subject to a restocking fee. Also when it comes to the return always offer a store credit. Three times out of five they will take it, which softens the blow to the bottom line.”

“In our competitive market, it is no longer possible to charge contractors a restocking fee. In response, we have enforced stricter standards for material returned for credit and refund only  those items that are truly resellable. In addition, we have tightened procedures for non-stock orders so that, if an item can be returned, there is a restocking fee agreed to in advance.”

“I agree with your view of ‘encouraging returns.’ Any waiver or adjustment of the restock fees should always rest at the bean counter’s desk supported by solid reasons why.”

“Almost all of our competitors charge re-stocking fees, so why should we not?”

“Make returns hard. Make the process arduous for salespeople and customers. Charge restock fees when applicable. I don’t worry about what competitors do, it’s up to us to make our own sound business decisions. If a certain customer always returns a lot of materials, we make sure our margins reflect that.”

“Stay the course. We are eliminating those accounts where we strayed from being strong. In fact, we’re changing it and are willing to walk from accounts that do not pay restock.”

“You’ve got to have a policy and communicate it. If our trucks are involved in cleaning up a customer’s jobsite, it’s a service to the customer and we always charge a 15% restock fee if we bring back resellable material on our trucks. If a customer brings their own merchandise in for credit, we still charge a 15% fee if it’s been more than 30 days from date of sale. We’ve found that lots of times when a contractor wants excess material removed from their jobsite, they just want it cleaned up and are not necessarily expecting credit for the items removed.”

“Use your discretion. If the customer seems hesitant about the product, give them a warning about re-stocking fees. If the material will take a lot of time and labor to re-stock, fees are a must. Try to be understanding. Sometimes it works, sometimes it doesn’t.”

“If you are returning the material back to your supplier, then it seems fair to pass on the supplier restocking fee to the customer and a little extra for your trouble. Especially with special orders  of non-stock material. We have so much competition that we rarely charge a restocking fee. Home Depot and Lowes have really made it hard because they will take just about anything back without question. Yes, they have encouraged returns. I think charging restocking fee on a case-by-case basis is smart. Habitual customers should be charged a restocking fee because they are most likely just culling your material.”

“You have accurately stated the challenge. Putting the policy in stone and always charging is not wise and neither is never charging. To be successful in our industry we need to think. I believe that giving discretion to the sales folks is appropriate so long as the leadership is paying attention to what the sales people are doing.”

“We’re not responsible for changes owners or contractors make. Or for their mistakes. They have the right to do business with whomever they choose but I believe establishing the lines at the beginning sets the tone of your business relationship.”

“I would agree that not charging a restock fee encourages customers to return materials. We have what I consider too many returns, which of course takes away from what our yard staff should be doing. One of the things that is time- consuming but vital is to determine if credit can be given at all. Not all items can be restocked due to damage. This is subjective and not all customers agree with the foreman. There are times we toss material and still give some credit just to keep a good customer coming back. All of this is frustrating, but we view this as a cost of doing business.”

“Unfortunately, the pressures of the large retailers dictate the expectation that anything can be returned for any reason and I, as an individual, no longer have to take responsibility for my own actions. We just got burned by a customer who refused to pay the restock charge on a special order item that she herself ordered. She disputed the charge with Visa and they charged $3,300 back to us. My how the times have changed.”

“In my view, I believe making it easier to do business with us is a good thing. Most of the time charging a restock fee makes the transaction confrontational, and I do not want that type of environment for my customers (or salespeople). That being said, we always charge when material has to be sent back to a vendor and it is costing us money.”

“Firstly, I would switch your policy so that only managers have the ability to waive restock fees. In my experience, if you give the salespeople too much pricing authority your bottom line will often suffer. If you prefer to keep your salespeople autonomous, establish a set amount as to how much a customer must spend in order to qualify for free returns.”

“We seem to have very similar conditions. We allow the salespeople to adjust restock fees on a case-by-case basis, and due to competitive situations very few customers have been granted exemption to restocks altogether, but management approval is always required. However, this is another area where customers can be trained. I usually try to use roofing or siding as the example. When they sell a 20 square job and have one square of materials left over, I ask them if they reduce their price to the homeowner. The answer is always no. Then I point out to them ‘Not only is the material already paid for, but they also got paid for the labor to install it and didn’t, so why is it unreasonable for us to retain a small portion to cover our labor in the delivery we already performed and the additional labor of handling it again?’ This is about 99% effective in justifying a restock. If after this explanation, the customer continues to dispute the restocking fee, and tells me that I don’t deserve to be paid for my labor, I question whether or not this is a customer I can afford to keep.”

“Returns are the most expensive and non-productive activity we have to contend with. They can consume half the net profit of the company, and have logistical effects on inventory storage and workflow that can snowball, and are hard to calculate. That said, groundless returns are fewer than half of the returns we process, and our first focus is on reducing the errors that lead to legitimate returns. We charge restocking fees, but often waive or reduce them for customers who don’t abuse the process. In many cases, a customer asking to make a return due to their error will look for ways to make it up to us.”

“Sometimes a modest restocking fee encourages builders to take advantage of it. A very hefty restocking fee, on the other hand, discourages builders from taking advantage of it and allows your sales staff some leeway to reduce the percentage of restocking fee to satisfy the customer. It ends up as a win-win situation for both parties and keeps the basic restock rule in place.”

“Keep an eye on this on a case-by-case basis. For every customer we have that has a reduced, or no, restock fee, there are ten who get charged the full amount and don’t have an issue with it.”

“The customer effectively becomes a vendor and we are purchasing the material from them. Explain the issues and expenses associated. Hopefully they will understand and work with you, potentially forming a stronger partnership.”

“You can reduce the restock fee since you are still in a competitive market. Bend but don’t break. You’ve established it. Don’t discontinue it.”

“We are in a similar position. I would advise the dealer to consider the lifetime value of the customer in making his/her decision.”

“We do not charge restocking fees. That being said, our customers don’t abuse the privilege. For those that do, the judgment needs to be made. Is their business worth it?”

“Why would you give salespeople the authority to waive these fees? Of course they will if you let them. The policy needs to be set and adhered to, makes it easier for the salesperson to tell the customer they aren’t allowed to waive it, end of story. If our trucks go out and pick it up, a restock fee is charged. On all special orders, a hefty restock fee is charged. If the customer returns lots of product, are you really making any money on that customer? Why sell to someone you aren’t making money on?”

“Base the restocking fee on the reason for the return, or if something was reordered to replace it. Or, keep return requests on the ‘corkboard’ to resell. From our experience, it’s almost inevitable that we pick up a return and that same customer reorders it within a day or two.”

“We charge 20%. Period. The other day a customer decided to keep the material instead of paying the 20%.”

“We recently updated our policy and procedure on this, and with this update, we assess a restocking charge on nearly every return. We also give ourselves a 3-day grace period before processing the return so that a member of our team can inspect the condition of the material to make sure it’s salable. We do not accept returns on non-stock/ special-order items. Under certain circumstances, we will allow them to come to our yard on consignment. The other thing we did was to proactively review this in detail with our most important customers as well as the ‘repeat offenders,’ to be sure that they understand it before asking to return something. Communicating this has made them more careful with estimating/ordering and has reduced the number and magnitude of returns.”

“Reign in your salespeople and adhere to a fair and reasonable return policy. Perhaps a dollar threshold or returns by volume will show your customer that you understand that all projects have overages and you are only charging for the excessive returns.”

“Set a policy that both the company and customers feel is fair. Ask key customers what they think. A combination of thoughts from all affected will get you a policy that you should not have trouble enforcing and not have to waive or reduce.”

“Look at each situation on a case- by-case. If the customer is returning material to only purchase additional items, then I would not charge a restocking fee. But I would add a point or two of margin to the new order to cover costs.”

“Have a conversation with select customers, explain how costly returns are and develop a strategy to decrease. Never allow the sales rep to override such fee.”

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