Whose "department" is it?

Today I went to the department store that has heretofore been my favorite, to return a recent purchase. The reason for the return was that the garment had, in one washing, shrunk to become a good two inches shorter. I felt that, considering its rather handsome price, the thing ought to have performed better. I asked for a refund, and fully expected the transaction to be simple and quick.

The young lady at the desk informed me -- and looked a bit stricken as she did so -- that the store does not accept returns of anything not in the exact condition it was in when purchased. She agreed with me completely that this was not a reasonable policy, but was powerless to do anything about it. Her manager made his decree via phone from his office.

She assured me the manager would come out to speak to me directly if I asked, but was somewhat doubtful as to whether it would make a difference. We decided to call him out, and when I explained my problem in a tone that clearly expressed perturbation, he relented and gave me my refund.

What can we learn from this situation? Here's what this experience tells me about this store:

1. The customer is considered to be in the wrong when making a return.
2. Money is not to be refunded, even when the product is defective.
3. Uncomfortable conversations about customer-unfriendly policies are left to the front-liners, who must take the heat but are powerless to resolve the problem.
4. Managers play "bad cop" from behind closed doors.
5. Only angry customers get satisfaction here.

This kind of systemic, customer-hostile company policy makes me question the wisdom of shopping at this store, when they are competing in the same market space as, for example, Nordstrom, and in the same geographic space as, for example, Walt Disney World. I've had better service in stores that sell comparable merchandise for lower prices. If you were me, would you go back?

It's been said that it costs ten times as much to attract a new customer as to retain a current one, and yet policies and systems like the ones described above persist in many companies. Where does your company spend its money? What do you do to retain your best customers, and what policies do you have in place that may be driving them away?