Take this with a grain of salt, the law is pretty old in Germany and I have heard different things why it was introduced. Also the eu directive is lot newer.

- you can try things out in a shop, you can't online

- it comes from door salesman Which liked to pressure people into buying stuff

- was extended to support local businesses as an added cost to sell online

>Could Lands End have kept its lifetime return policy in Germany under this law?

Don't know about that policy/any details, but sure.. why not? Laws only define a minimum, not a maximum service level