How Amazon plans to fix its massive returns problem

Amazon is handling a rapidly increasing number of returns which is creating a huge problem for the e-commerce giant and the planet.

A survey by the National Retail Federation found that a record $761 billion in merchandise was returned to retailers in 2021. This amount was more than the amount spent by the US on national defense in 2021, which stood at $741 billion.

Amazon won’t share its overall return numbers, but in 2021, the National Retail Federation estimates that 16.6% of all merchandise sold during the holiday season was returned, up 56% from the year before. . For online purchases, the average rate of return was even higher, around 21%, up from 18% in 2020. With net sales revenue of $469 billion last year, Amazon’s return numbers are staggering.

According to return solutions provider Optoro, US returns during their complex reverse journey generate 16 million metric tons of carbon emissions and up to 5.8 billion pounds of landfill waste each year.

“We’re talking about billions, billions, and billions [dollars of] “The byproduct of consumerism sucks,” said Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada.

“Reverse logistics is always going to be bad because in most cases the goods can’t be resold,” Cohen said. “The most appropriate route is in a dustbin, in a landfill.”

Amazon has told CNBC that it does not ship any items to landfills, but relies on “energy recovery” as a last resort.

Cohen said, “Energy recovery means that you burn something to generate heat, to produce energy. And you rationalize the disposal of goods as a conversion from one type of substance to another.” “To the extent they are, I don’t think they fully reveal.”

Amazon has said it is “working toward a goal of zero product disposal,” although it would not set a target date for reaching that goal.

“We encourage a second life on all products that we receive back,” said Cherise Armor, Amazon’s head of North American returns, in an exclusive interview with CNBC.

“And it comes in the form of selling most of the items we receive. They’re sold as new and used, or they go back to the seller or supplier, or we donate them,” Armor said. .

Energy recovery, Armor said, is only “for items that we cannot recover or are not recyclable” due to legal or hygienic reasons or product damage.

Armor first joined Amazon 12 years ago, starting as a night shift operations manager at a fulfillment center in Indianapolis. She said the goal of zero product disposal was something she talked about at Amazon for many years.

Researchers have found that consumers love easy returns.

An oft-cited 2018 survey of 1,300 online shoppers found that 96% would return to a retailer if they had a good return experience, and 69% were put off a purchase if they knew they were asked for return shipping. will have to pay. In 2019, Amazon expanded free, easy returns to millions of items.

“Amazon has really been a game changer in the world of reverse logistics because of how easy their returns are,” said Zack Rogers, who ran returns for an Amazon subsidiary called Quidsee from 2010 to 2012, before he became the head of supply chain management. became an assistant professor. Colorado State University.

“So now you have your more traditional retailers like Walmart or Target types implementing similar policies because that’s a really big piece of how you compete on the retail side of it,” he said. “It creates brand loyalty, which makes you more likely to sign up [Amazon’s] Prime and Prime is really the thing that drives that company’s flywheel.”

Amazon now allows returns at 18,000 locations, including the option to leave items without a box or label at Kohl’s, UPS, and some Whole Foods stores. Give one a try before you buy for Prime members designed to make returns even easier for clothing that already includes return labels in the box. On the extreme end of easy returns, Amazon is allowing customers to keep certain “returned” items, while still returning them.

“If I tell you to keep the product, rather than calculate the cost of recall and the carbon impact, I look better as a company, don’t I?” Tony Ciarrotta, executive director of the Reverse Logistics Association, said. “Let’s guys keep it and then it doesn’t count against us. But now you, as a consumer, what do I do with this thing, right?”

Amazon now has to address the problem of what to do with returns on the back end.

Amazon spent about $152 billion on logistics in 2021 — about a third of total net sales. This is up from $119 billion in 2020. Returns factor in these costs, so anything Amazon can do to reduce those costs will help the company’s bottom line.

“They are going to do it for their own sake, although they will give it in the name of saving the planet,” Cohen said. “But at the end of the day, their actions are going to be based on the economics of what we’re seeing.”

To that end, in 2019 Amazon launched a donation program that allows US sellers to automatically make additional donations and return goods to a network of 100,000 local charities through a partnership with the nonprofit network Good360. The organization works with nearly 400 companies, including giants such as Walmart, CVS and Nike, but says Amazon is its largest corporate donor.

Good360 says it coordinates with local charities for direct pickup at more than 230 Amazon facilities, which helps Amazon save on transportation costs as gas prices hit record highs. Nonprofits pay a fee to Good360 to help cover freight costs.

They also agree to certain rules before gaining access to Amazon donations.

“They’re not going to resell those items, put them on online auction sites, take them to local flea markets or that sort of thing. So protecting the brand integrity of our donors is really up to Good360. central,” said Shari Rudolph, Good360’s chief development officer and CMO.

There are also potential tax write-offs that can come with donating to a nonprofit.

“There are some programs that are available,” Rudolph said. “I have no visibility into what the Amazon team is taking advantage of, if anything.”

There has also been a boom in the secondary market which has made it easier to make money on second hand items. Amid increasing pressure from younger shoppers seeking sustainable shopping options and a supply chain backlog caused by a shortage of new goods, Rogers of Colorado State calculated the size of the secondary market for 2021 at $688 billion, up from $649 billion in 2020. Was.

As secondhand items become a potential moneymaker, Amazon launched two new programs to reintroduce returns in 2020. It now gives sellers the option to liquidate returns by sending them to major third-party liquidators such as Liquidity Services to auction them off in the secondary market.

Also in 2020, Amazon started offering grade and resell options for returns to select sellers. With this option, Amazon evaluates and grades the returned item—such as new, very good, good, or acceptable—then resells it on specialized sections of its site. There’s Warehouse Deals for used goods, Amazon Refurbished for refurbished items, Amazon Outlets for Overstock, and a tongue-in-cheek daily deals site called Woot! Which sells a $10 “bag of crap”. Amazon also offers gift cards for customers to trade in their used Amazon devices, which it can attempt to refurbish and resell.

“We expect these programs to help give Second Life to more than 300 million units per year,” Amazon’s Armor said.

Rogers, a former Quidsi employee, explained that it’s just smart business.

“Let’s say a 20% return rate, which is $93.8 billion of return. If instead of getting pennies on the dollar from a salvage dealer, you could get 30 cents on the dollar from a strategically targeted disposition, which is us. That raises to $28. billion,” Rogers said.

“At $28 billion, having a Voot or Amazon outlet, it makes a lot more sense now because we’re really starting to get a return for our investment,” he said. “Before, when we were on a smaller scale, it was like, ‘This is garbage, get rid of it.’ Now, as we get older, they’re growing to the point where it would be really irresponsible to monetize those returns.”

But reverse logistics experts say the best way to reduce waste and cut return costs is to prevent them from occurring in the first place and then create a disincentive to return goods.

“If Amazon starts charging for returns, the industry will largely succumb to Amazon, because it will give them the air cover to do so,” Cohen said.