States with No Right to Cancel Purchase Agreements See Less Sales Net of Returns

January 22, 2020

This analysis looks at the differences in customer sales and returns by refund laws. I look at whether or not a state has a refund law that requires merchants to provide refunds for returns. I find that 38 out of 51 states (including the District of Columbia) have a “no right to cancel contracts or purchase agreements.” The official language is: “There’s no right to cancel contracts or purchase agreements. Whether you can receive a refund is dependent on the retailer’s return and refund policies.”

Those states that provide a return policy have language that looks like this one, which is an example that comes from the state of California: “Retailers are required to clearly post their refund policy unless they offer a full cash refund, exchange, or store credit within seven days of the purchase date. Retailers failing this requirement are required to accept full refunds within 30 days of purchase.”

I run a t-test to look for statistically significant differences in means in sales and returns between “no right to cancel” states and “right to cancel” states. Again, 38 out of 51 states are “no right to cancel” states, or 76% of states. On the flip side, 13 states are “right to cancel.”

Figure 1 shows that “right to cancel” states generate more than double the amount of sales as “no right to cancel” states on average. “Right to cancel” states generate $123 billion dollars in sales on average while “no right to cancel” states generate $55 billion in sales on average. The difference in means is very statistically significant, which means the difference is unlikely to be due to chance.

Turning to the topic of returns, Figure 1 shows that the mean returns of “no right to cancel” states is less than half of the mean returns for “right to cancel” states. “No right to cancel states” generate $6 billion in returns on average. “Right to cancel” states generate $13.7 billion in returns on average. In other words, “right to cancel” states see many more returns and the difference in means between “no right to cancel” and “right to cancel” is very statistically significant as well.

On the topic of return fraud, “right to cancel” states lost an average of $683 million dollars in return fraud compared with “no right to cancel” states which lost $306 million on average. An example of return fraud is using the purchased product, then repacking it, and returning it. Again, the difference in means is very statistically significant.

Finally, the question is, do “right to cancel” states sell more on average even net returns? The answer is yes. “Right to cancel” states generate $109 billion in sales, on average, net of returns and “no right to cancel” states generate $48.9 billion in sales on average net of returns.

Figure 1.  Difference in Mean Returns and Sales Between Right to Cancel and No Right to Cancel States
VariableRight to Cancel (Mean)No Right to Cancel (Mean)Difference in MeansT-StatisticSignificant?
Lost Retail Revenue due to Return Fraud$682,910,427$305,607,953$377,302,4742.7934Yes
Sales Net of Returns$109,265,668,376$48,897,272,515$60,368,395,8612.7934Yes

The takeaway is that states that do provide a right to cancel a purchase or obtain a refund generate more sales than states with no right to cancel on average. However, “right to cancel” states also generate more returns. Sales, net of returns, show that “right to cancel states” still come away with more sales.

Source: https://consumer.findlaw.com/consumer-transactions/customer-returns-and-refund-laws-by-state.html, https://appriss.com/retail/wp-content/uploads/sites/4/2018/12/AR3018_2018-Customer-Returns-in-the-Retail-Industry_Digital.pdf

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