The policy does make sense. The receipt proves that it was purchased from that store and the price at which it was purchased.
What's to stop you from buying 2 swimsuits "buy one, get one free" from Wal-Mart and returning it for a full refund at Target?
They have to set a limit somewhere. If you add up all they losses they have from the returns like this I bet it is substantial. To any company you are a number, not a soccer mom. They have millions of customers so they cannot know who you are and cannot discriminate because you are honest.
If you owned a small craft store and earned $30,000 a year, I doubt you would allow $5000 a year in returns like this for products that you did not sell or else you sold a year ago. Now mulitply that number of returns that Target takes. They are a business to make money.