Zappos does the same, if the shoe doesn't fit, they replace it immediately.
Popular retailers are the ones who treat their customers with respect, and trust. They don't give them problems or hassle them when a return is being made.
Would you let an issue of trust destroy your reputation and lead you out of business? Instinctively, everyone would say no, but more often than not their behavior does otherwise.
When you have a disagreement with a customer, do you send them away upset? I have been watching the unfolding of a dispute between a local restaurant and a group of disgruntled customers who believed they were lied to, then subsequently treated poorly. At issue: a $60 cover-charge added to the bill for a pay-per-view event. What that $60 got the restaurant: a horrible rating on UrbanSpoon, Yelp, and throughout the internet; also 12 former customers who will now tell everyone they encounter to avoid the restaurant.
Is it the end of the road for this establishment? Probably not, but would they be better off today by forgiving the customers and making everything peaceful? Definitely. There are situations when customers are truly taking advantage, and you have to walk away, but your business needs to establish trust with your customers to become the business everyone loves. Especially today, where every upset customer can reach more people, faster than ever.