Problem definition: Wardrobing is a retail consumer practice of both academic and practical importance. Wardrobing behavior happens when a customer buys a product; uses it for some time; and then returns the now-used product to the store for a refund. Since these returned products cannot be sold as new, many retailers resort to selling them as open-box items, with a concomitant need to lower the price of these products. The previous literature suggests that this opportunistic behavior is a threat to retailer profitability and should be fought by awarding only a partial refund for returned products. Methodology/results: This paper considers the benefits and costs of wardrobing in direct contrast to the business press attitude that wardrobing is harmful to the retailer and thus unethical, fraudulent, or otherwise criminal. Wardrobing is in fact not entirely bad because it offers the retailer the ability to practice price discrimination with non-opportunist consumers, who can choose to purchase either the new product or the open-box product, at different prices. Managerial implications: This paper thus shows that retailers can benefit not by squelching wardrobing behavior, but instead by offering low restocking fees that encourage the opportunist segment to purchase and return the product by offering low restocking fees. Wardrobing thus effectively turns a single-product, single-price retail offering into a multi-product, multi-priced, dynamic product line strategy for the retailer. This paper also provides a new theoretical explanation to the low (sometimes zero) restocking fees charged by retailers for items even during periods with high levels of wardrobing behavior (e.g., LCD TVs before Super Bowl weekend).

Key words: OM-marketing interface; retailing; product returns; durable goods; game theory