The Retail Sector's Strategic Shift: How Liberal Return Policies Are Driving Consumer Confidence and Stock Performance

The retail sector is undergoing a quiet revolution, driven not by flashy technology or aggressive marketing, but by a subtle yet profound recalibration of return policies. In 2025, companies like Ulta Beauty and Sephora have emerged as case studies in how flexible return policies can shape consumer trust, sales performance, and investor sentiment. These policies, once seen as a cost of doing business, are now central to the evolution of retail business models—and the financial returns they generate for shareholders.

The Return Policy Paradox

The National Retail Federation (NRF) reports that U.S. returns in 2024 exceeded $890 billion, with 51% of Gen Z consumers engaging in “bracketing”—buying multiple items to return some. This trend has forced retailers to balance two competing priorities: satisfying customers who expect hassle-free returns and curbing fraudulent activity that erodes margins. Ulta Beauty and Sephora, two giants in the beauty retail space, have taken divergent approaches to this challenge, with distinct outcomes for their stock performance.

Ulta Beauty, for instance, reduced its return window from 60 to 30 days in November 2024, a move that initially raised eyebrows among analysts. Yet, the company's first-quarter 2025 results defied expectations: net sales rose 4.5% to $2.8 billion, with a 2.9% increase in comparable store sales—the first positive comp in over a year. Ulta's CEO, Kecia Steelman, attributed this to operational improvements, but the tightened return policy likely played a role. By limiting returns to 30 days, Ulta may have discouraged bracketing while still maintaining a customer-friendly policy. The company also introduced stricter conditions for returns, such as requiring proof of purchase and limiting returns to items in “new or gently used” condition.

Sephora, by contrast, implemented a 30-day return window in April 2025 but faced steeper challenges. While the brand remains a leader in high-average-order-value (AOV) categories, its Spring 2025 Haul event saw weaker year-over-year sales compared to Ulta's. Navigo Marketing's analysis suggests that Sephora's return policy changes coincided with a decline in search visibility and customer engagement. This highlights a critical insight: return policies are not just operational rules—they are signals of brand value. A policy perceived as too restrictive can alienate customers, particularly Gen Z, who prioritize flexibility.

The Investor Angle: Balancing Risk and Reward

For investors, the divergent trajectories of Ulta and Sephora underscore a broader truth: return policies are now a key metric for evaluating retail stocks. reveals that Ulta's shares outperformed Sephora's by approximately 12% during this period. Analysts cite Ulta's ability to align its return policy with operational efficiency and customer expectations as a key differentiator.

Ulta's strategic moves—such as launching its Ulta Beauty Marketplace and expanding internationally—have further insulated it from return-related headwinds. The company's cautious guidance for 2025, despite macroeconomic uncertainties like the Trump administration's tariff policies, reflects confidence in its ability to maintain margins while catering to evolving consumer needs. In contrast, Sephora's stock has lagged, with analysts noting its slower adaptation to the bracketing trend and its reliance on high-AOV items, which are less forgiving to return policy changes.

The Broader Implications for Retail

The Ulta-Sephora dynamic is emblematic of a sector-wide shift. Retailers are no longer merely reacting to return fraud; they are proactively designing policies that enhance customer trust while optimizing profitability. This requires innovation in areas like AI-driven return risk assessments, dynamic return windows based on product categories, and partnerships with third-party logistics providers to streamline returns.

For investors, the lesson is clear: return policies are a lens through which to assess a company's ability to innovate its business model. Retailers that can reduce the cost of returns—whether through tighter policies, technology, or customer education—will likely outperform peers. shows a steady rise in returns, but the gap between leading and lagging retailers is widening.

Strategic Recommendations for Investors

1. Prioritize Retailers with Agile Return Policies: Companies like Ulta Beauty, which balance flexibility with fraud prevention, are better positioned to retain customer loyalty and margins.
2. Monitor Operational Metrics: Track indicators like same-store sales, customer satisfaction scores, and return rate trends to gauge the effectiveness of return policy changes.
3. Beware of One-Size-Fits-All Approaches: Sephora's struggles highlight the risks of applying rigid return policies across all customer segments. Investors should favor retailers that segment policies by product type or customer behavior.

In 2025, the retail sector's ability to innovate around return policies is no longer a niche concern—it is a defining factor in shareholder value creation. As Ulta Beauty and Sephora demonstrate, the companies that master this balance will not only retain customers but also outperform in a fiercely competitive market. For investors, the message is clear: the future of retail lies in policies that are as smart as they are customer-centric.