I happen to know someone who works in a H&M store. They throw out any returned items even if they haven't been worn once. It's cheaper than having to put the work into sorting them.
There is often a disconnect between management and lower levels. I suspect the store would probably get in trouble for this behaviour.
Not least because it opens the company up to fines for false advertising (e.g. Australian Competition and Consumer Commission regularly polices companies operating in Australia, which H&M does)
Employees perform the behaviors you incentivize. H&M can have an official policy that disagrees, but if their employees are incentivized not to comply, then they won't, and that's H&M's fault.
A former company that I worked for wanted their customers (Real Estate Agents) to fill out profiles. They wanted the account managers to encourage this behaviour so they tied the bonus/commission to having it filled out.
Needless to say, the customers had very little interest in filling out the profiles. I found all the account managers sitting around a table at a conference filling them out themselves instead of talking to the customers (as they should have been at the event).
A few even discovered they could fill the fields with '.' characters and game the system (they got caught and fired for crossing the line). The others just wasted valuable time they could have been selling products and got their bonuses.
