L.L. Bean just killed its lifetime return policy -- Is Costco next?

If you love L.L. Bean, by now you've probably heard the bad news: L.L. Bean's famous lifetime satisfaction guarantee is going the way of the dodo.

"Since 1912," said L.L. Bean in a posting on Facebook last week, the company has offered "one of the best guarantees in retail," by accepting returns for any purchases that customers aren't satisfied with -- basically forever. The problem is, says the company, "a small, but growing number of customers has been interpreting our guarantee well beyond its original intent," even buying old L.L. Bean products at "yard sales" and then attempting to return them for full refunds of the original price.

RELATED: History of L.L. Bean through photos

24 PHOTOS
History of L.L. Bean through photos
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History of L.L. Bean through photos
Mail order co. founder Leon Leonwood (L. L.) Bean testing wooden duck decoys. (Photo by George Strock/The LIFE Picture Collection/Getty Images)
Mail order co. founder Leon Leonwood (L. L.) Bean w. his grandchildren (L-R) Leon, Tom & Jimmy Gorman. (Photo by George Strock/The LIFE Picture Collection/Getty Images)
American clothier and buisnessman Leon Leonwood Bean (1872 - 1967), founder of the L.L. Bean clothing retailer, sits in office with his grandchildren, from left, Leon, Jimmy, and Tom Gorman, Freeport, Maine, 1941. (Photo by George Strock/The LIFE Picture Collection/Getty Images)
L.L. Bean Co. mail-order clothing catalogue open to page advertising pajamas and robes. (Photo by James Keyser/The LIFE Images Collection/Getty Images)
Employee at the L.L. Bean distribution center filling a mail order. (Photo by Steve Liss/The LIFE Images Collection/Getty Images)
STAFF PHOTO BY DOUG JONES -- Thursday, September 2, 1999 -- One of LL bean's early if not original issue of the boot that made the company famous sits in the foreground complete with reddish rubber lower contrasted with the latest generation of the famous footware. (Photo by Doug Jones/Portland Press Herald via Getty Images)
SLUG-HX/LLBEAN--DATE-4/26/2001--LOCATION-Columbia Mall, Columbia, Maryland--PHOTOGRAPHER-MARVIN JOSEPH/TWP--CAPTION- LL Bean's second free-standing store will open May 4, 2001 at the Columbia Mall. PICTURED, Construction workers are putting the finishing touches on the new LL Bean store. (Photo by Marvin Joseph/The Washington Post/Getty Images)
STAFF PHOTO BY JACK MILTON, Friday, January 4, 2002: L.L. Bean's Freeport store. (Photo by Jack Milton/Portland Press Herald via Getty Images)
FREEPORT, ME - NOVEMBER 28: (L-R) Pam McLaughlin, Jenny Leeman and Jackie Merrill fill boxes with customer's orders in the L.L. Bean shipping center on 'Cyber Monday,' the online retail world's version of Black Friday, November 28, 2005 in Freeport, Maine. L.L. Bean reported a surge in on-line shoppers today as consumers continue to buy holiday gifts. (Photo by Joe Raedle/Getty Images)
Staff Photo by Shawn Patrick Ouellette, Sunday, June 18, 2006: Jim and Penny Pace of Birminham Alabama look over LL Bean tee shirts at the Freeport store Sunday. (Photo by Shawn Patrick Ouellette/Portland Press Herald via Getty Images)
DEDHAM, MA - OCTOBER 14: The LL Bean store at the new Legacy Place in Dedham features a giant boot outside. (Photo by Bill Greene/The Boston Globe via Getty Images)
LONDON, UNITED KINGDOM - FEBRUARY 21: Vintage boots by LL Bean and jeans by B2B (Taipei) worn by artist Hommy Ltu during London Fashion Week Autumn/Winter 2012 at on February 21, 2012 in London, England. (Photo by Catherine Farrell/WireImage)
L.L. Bean now offers 55 versions of it's iconic hunting boot in a variety of colors including these colorfull moccasin versions of the shoe. -- Friday, February 7, 2014. (Photo by John Ewing/Portland Press Herald via Getty Images)
Cut out pieces of leather sit in piles before being made into boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
Cut out pieces of leather sits in piles before being made into boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
A worker uses a die-cutting machine to cut out shapes of leather to be sewn into boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
A worker uses a die-cutting machine to cut out shapes of leather to be sewn into boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
Workers use a die-cutting machine to cut out shapes of leather to be sewn into boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
Signage stands outside the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
Workers make boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
Finished boots sit before being packaged and shipped at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
A worker packages boots for shipping at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
A worker packages boots for shipping at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
A worker adds a triple stitch to boots at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Friday, Feb. 6, 2015. Over 450 people are employed at L.L. Bean Inc.'s Maine factory where approximately 1,300 pairs of boots per day are manufactured. Photographer: Scott Eisen/Bloomberg via Getty Images
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To foil these malefactors, L.L. Bean is cutting short its lifetime guarantee and instead promising to replace and refund items only for "one year after purchasing an item," requiring proof of purchase, too. Returns after one year may still be accepted "if an item proves to be defective due to materials or craftsmanship," but L.L. Bean is reserving the right to make the final decision in such cases.

Hiking apparel and equipment arranged neatly on a table

Image source: Getty Images.

Will Costco play follow the leader?

L.L. Bean's not alone in being afflicted by abusers of a generous customer policy. In 2013, sportswear retailer REI limited returns of its goods to one year from purchase as well. Before that, it was Costco(NASDAQ: COST) putting a hard stop on returns of electronics 90 days after purchase in 2007 (but continuing to accept merchandise returns for all sorts of reasons, with no time limits, at its discretion).

Seeing so many of its competitors either eliminating their own lifetime guarantees -- or never offering them in the first place -- one has to wonder: Is Costco next?

Actually, I think the opposite is more likely. I think we're going to see Costco's returns policy stay in place -- even leveraged to grow the brand.

L.L. Bean's problems are not Costco's

Why? Well for one thing, the two companies are in very different financial situations. Although L.L. Bean is a private company and not required to file detailed financial reports with the SEC, we know from what L.L. Bean has disclosed publicly that its sales are in something of a funk.

RELATED: 11 items to always buy at Costco

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11 items to always buy at Costco
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11 items to always buy at Costco

1. Fresh produce

Photo via Getty

2. Gas 

Photo via Getty

3. Wine

Photo via Getty

4. Dairy products 

Photo via Getty

5. Eyeglasses

Photo via Getty

6. Giftcards

Photo via Shutterstock

7. Dog food

Photo via Getty

8. Baking items 

Photo via Getty

9. Bakery goods 

Photo via Getty

10. Oils (coconut oil, olive oil, vegetable oil)

Photo via AOL

11. Costco's snackbar (hotdogs, pizza, soda) 

Photo via Shutterstock

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Press reports and press releases by L.L. Bean itself confirm that from 2014 through 2016, L.L. Bean experienced essentially zero growth with sales stuck at $1.6 billion for three years straight. Last year might have been better -- we don't know yet, but L.L. Bean announced it would freeze its employee pension program in 2017 in order to free up resources to reinvest in the business.

However, Costco grew its sales a healthy 15% from 2014 through 2017, its profits expanded twice as fast -- up 30% in three years -- despite having to navigate the turbulence of a change in credit card partners during this period. How did it do that?

If you ask me, the key difference between the two businesses -- and the key reason Costco will be able to keep its liberal returns policy -- is that Costco doesn't actually make much money selling merchandise. Instead, Costco makes most of its money from selling memberships that allow customers to shop at Costco. In fiscal 2017, for example, Costco's membership revenue of $2.85 billion actually accounted for 106% of the company's net income of $2.68 billion.

Costco cards and membership prices

Pay attention to these numbers. They're the reason Costco can afford to take back your returns. Image source: Costco.

Costco's competitive advantage

In effect, Costco's lucrative membership business subsidizes its small loss from the primary retail operation. It also permits Costco to absorb more losses from the few folks who may abuse generous returns.

Quality customer service is an important part of the value proposition for a Costco membership, and given the company's unique position in retail, I think Costco is unlikely to follow L.L. Bean's lead and change its own policy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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