Judging by the financial stats on IMDB (this didn't even make half of its $25 million budget back), it seems that audiences in 1985 were just not buying an Oz movie that mostly ditches the Scarecrow and Toto, but does include a talking chicken, a flying couch, and electroshock therapy. It's 1985's loss. And Disney's!
A sort of amalgamation of two L. Frank Baum Oz books, Return (despite Internet rumors) is pretty definitely a sequel occurring in the same universe as The Wizard of Oz. Firstly, it is named Return to Oz. Also, the first part of the film involves Dorothy's transfer to a terrible psych hospital because she cannot sleep and won't stop talking about her trip to Oz. Through stormy happenstance, Dorothy delivers on the title's promise and returns to Oz.
But first we spend some time in Jodorowsky's Dune. This Oz is a much more barren and bleak place than the sugar-sweet Wizard. Dorothy and her talking chicken Billina traverse a desolate landscape, finally arriving at an Emerald City in which the residents have been turned to stone and replaced by monstrous dandies called Wheelers.
The film could be read as a prolonged series of jokes on audiences who expected something conventional. Instead of dancing munchkins, we get decapitated statues. Rather than cowardly lions, we get a flying machine made out of a couch and a moose's head and a dusty, portly clockwork robot. All of this is straight out of the Baum books, but people generally won't read and weren't prepared for the shock of so much unfamiliar territory.
Thirty years later, the virtues of Return are easier to see. As with the books that inspired it, this Oz doesn't flinch from shadows—it remembers that the beloved original had witches and flying monkeys, and makes sure to toss in similarly upsetting characters. Return realizes that fantasy aimed at children needs menace and general weirdness. This movie frequently dives way into psychedelia and dreamlike visions. A talking pumpkin calls a nine-year-old "Ma". An evil queen keeps a room full of spare heads, then later whips a chariot pulled by wheeled men. Rocks are killed by eggs. All of this is realized with no expense spared—the effects, for 1985, are glorious and the set design in this movie makes it worth watching despite the flaws.
Okay, the flaws. Some elements of the books were tweaked, but it might have been nice to see even more monkeying before this hit the screen. It's perfectly fine in fiction to shrug the shoulders and say, "Oh, yeah, PS, eggs are poison." But in a film, we're watching scenes unfold for a long while and aren't sure what's happening until after the fact. This would have been much tighter if some of the middle portion had been clipped as well, though it would be a shame to lose those long scenes of Mombi's palace. I would have loved to have seen General Jinjur and her all-girl army shoehorned in, but the film's already kind of bloated as it is.
But! You should still check this one out. As a sequel/retread, it ties Showgirls 2 for brazen insanity and it's much more endearing than Sam Raimi's joyless Oz treatment. "I have always valued my lifelessness."