How would that avoid them sending you the same email they did the OP?? If they want to keep some of your money they will. They DO.
Well that's obviously your opinion. Because in practice, of the many knives I've returned to companies with restocking fees, I have never been charged a restocking fee ever. The difference is that I establish communication BEFORE boxing up the item and sending it back with a note saying what's wrong with the knife and requesting a refund.
And yes, you're right that the customer is at the mercy of the retailer. Why? Because the customer agreed to the retailer's terms. Had the OP realized that KC could have said "nope nothing's wrong with it" and charged a restocking fee, the OP probably would have taken a different approach to avoid being charged the fee.
Your attempt here to bash all retailers who charge restocking fees isn't gaining much traction (aside from the conspiracy theories). Restocking fees are a necessary evil for the average knife retailer. The simple truth is that the average knife retailer cannot afford to send out knives for free, have them out of their inventory for weeks, insure them against loss, process & package orders, pay referral fees, credit card fees, etc, etc, WITHOUT a sale to offset all of these sunk costs.
All that said, I do think it would be a good customer service practice for retailers to contact customers upon which a restocking fee would be imposed and offer alternatives before applying the fee. In other words, KC would send an email saying something like:
"Hey we received this knife back and have determined that it is not defective and therefore a restocking fee will apply to a refund. If you would instead like to exchange this knife for another, we would be happy to do so and no restocking fee would apply. Please let us know how you'd like to proceed."