When they file for bankruptcy, I’m curious if one of their top reasons will be losses from warranty fulfillment
When you return a vacuum or a half-eaten steak to Costco years later, Costco usually makes the manufacturer pay for it, not the store.
Here is the breakdown of how these "conscience-based" returns actually work financially for retailers like Costco versus warranty-focused stores like Best Buy.
1. The Costco Model: "The Manufacturer Takes the Hit"
Costco has what is called "monopsony power"—they are such a massive buyer that they can dictate terms to their suppliers.
* The Agreement: When a company like Shark (vacuums) or a bedding company sells to Costco, they often sign an agreement that includes a "Return to Vendor" (RTV) clause or a "Markdown Allowance."
* How it works: If you bring back a vacuum 3 years later because it "stopped sucking," Costco refunds you. In the backend, they often ship that vacuum back to the manufacturer and deduct the cost from their next invoice to that manufacturer.
* The "Eating Meat" Example: If you return a half-eaten steak (which people do), the manufacturer often eats that cost, too. Costco’s deal with food suppliers typically builds in a percentage buffer for "shrinkage" and returns, or the supplier credits them for the spoiled product to keep Costco happy and keep their product on the shelves.
* Why Manufacturers Agree: They have no choice. Selling at Costco is so lucrative (millions of units) that they accept the cost of your 3-year-old return as the "cost of doing business."
2. The Best Buy Model: "The Insurance Pool Pays"
Your premise about Best Buy is slightly different. Best Buy is generally not lenient with "conscience" returns long after purchase. They usually have a strict 15-day return window (60 days for paid members).
* Extended Warranties: If you bring a broken vacuum back to Best Buy after 2 years, they usually only help you if you bought the Geek Squad Protection.
* Who Pays: This is an insurance product. The money you paid for the warranty goes into a pool. When your item breaks, the repair or replacement is paid for by that pool of money (and the unspent money is profit for the insurer/Best Buy). The manufacturer is usually off the hook once their standard 1-year warranty expires.
3. The "Conscience" Factor & Abuse
You asked if it's left up to the customer's conscience. At Costco, yes.
* The unspoken rule: Costco tracks every return you make. If you return a vacuum every 2 years like clockwork to get a free upgrade, or return dead Christmas trees in January, they will flag your account.
* The consequence: While they rarely deny a specific return, they have been known to cancel the memberships of "serial returners." They effectively "fire" the customer because you become unprofitable.
Summary
* At Costco: You are likely hurting the manufacturer, not Costco.
* At Best Buy: You are likely hurting no one because they won't take it back without a warranty (which you paid for).
* The "Mom & Pop" Shop: If you do this at a small local business, the store owner takes the hit personally. They rarely have the leverage to force the manufacturer to pay for a return 2 years later.
Compared to Costco. Bed Bath & Beyond is the perfect example of what happens when the "conscience system" fails and the store takes too much of the hit.
The Bed Bath & Beyond you are likely thinking of—the one with the famous 20% off coupons and the "return anything forever" policy—no longer exists. It went bankrupt in 2023.
Here is the breakdown of how they handled returns and why it eventually helped destroy them:
1. Who Took the Hit? (The "Golden Era")
For decades, Bed Bath & Beyond operated similarly to Costco, but with a fatal flaw.
* The Big Brands (Dyson, Keurig, etc.): Like Costco, Bed Bath & Beyond had leverage. If you returned a broken Dyson vacuum 2 years later, they would send it back to the vendor (RTV - Return to Vendor) and the manufacturer paid.
* The "Soft" Goods (Towels, Sheets, spatulas): This is where they lost. If you returned a used towel or a spatula because you "didn't like it" a year later, the manufacturer generally did not take that back. The store had to mark it as "damage/shrink" and throw it away or sell it to a liquidator for pennies. The store took the hit.
2. The "Conscience" Failure
Unlike Costco, which charges a membership fee to offset losses and tracks your returns to ban abusers, Bed Bath & Beyond was open to the public.
* People would buy expensive wedding gifts, use them, and return them for cash.
* People would return worn-out sheets after 5 years claiming they were "defective."
* Because they didn't have the membership revenue to cushion these losses, the "generous" policy bled them dry.
3. The New Reality (It's now just Overstock.com)
After the bankruptcy in 2023, the brand name was bought by Overstock.com.
* The physical stores are gone.
* The "return forever" policy is dead.
* Current Policy: They now have a standard 30-day return window. If you try to return something used or without a defect, they either won't take it or you pay for shipping.
Summary:
Costco survives the "conscience" model because they have your membership fee and the power to "fire" you as a customer. Bed Bath & Beyond tried to play the "nice guy" without those protections, and the cost of those returns (combined with poor management) helped put them out of business.