How Amazon Plans to Fix Its Massive Returns

Amazon processing a The number of profits increases rapidly is causing a huge problem for the e-commerce giant and the planet.

A survey by the National Retail Federation found that a a record $761 billion in merchandise returned to retailers in 2021. That amount surpasses what the United States spends on defense in 2021, which is $741 billion.

Amazon won’t share its overall profit figure, but in 2021, the National Retail Federation estimates 16.6% of total goods Holiday sales were returned, up more than 56% year-over-year. For online purchases, the average rate of return is even higher, at almost 21%up from 18% in 2020. With $469 billion in net sales With last year’s sales, Amazon’s profit numbers can be staggering.

The U.S. returns solutions provider generates 16 million tons of carbon emissions during their complex back-and-forth journeys and amounts to 5.8 billion pounds of landfill waste each year, according to the solution provider. reimbursement method Optoro.

“We’re talking billions, billions and billions [dollars of] Mark Cohen, director of retail research at Columbia Business School and former CEO of Sears Canada.

“Reverse logistics is always frustrating because goods, in most cases, cannot be resold as they were,” says Cohen. “The most appropriate way is to enter a landfill, into a landfill.”

Amazon has told CNBC it doesn’t send items to landfills but relies on “energy recovery” as a last resort.

“Energy recovery means you burn something to generate heat, to generate energy,” says Cohen. “To the extent they’re doing that I don’t think they’re disclosing enough.”

Amazon says it’s “moving towards zero waste,” although it won’t set a target date for that goal.

“We encourage a second life on all the products we get back,” said Cherris Armor, head of Amazon North America.

“And that happens in the form of selling most of the items we get. They’re resold as new and used, either back to the seller or the supplier, or we give them away.” , said Armor.

Armor adds that energy recovery is only for “items that we cannot recover or cannot recycle” for legal or sanitary reasons or due to 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 zero-waste goal is something they’ve talked about at Amazon for years.

An often-quoted 2018 survey 1,300 online shoppers found that 96% would return to a retailer if they had a good return experience and 69% would not buy if they knew they would have to pay return shipping. In 2019, Amazon Free expansion, easy return to millions of items.

Zac Rogers, who ran profits for an Amazon subsidiary called Quidsi from 2010 to 2012, said: “Amazon has truly been a game changer in the world of for-profit reverse logistics. how easy it is for them.” Colorado State University.

“So now you have more traditional retailers like Walmart or Target “Implement similar policies because that’s a really important part of how you compete on the retail side,” he said. It creates brand loyalty, making you more likely to sign up [Amazon’s] Prime, and Prime is really what drives that company’s flywheel. “

Amazon currently allows returns at 18,000 locations, including the option to ship items without a box or label at Kohl’s, UPS and some Whole Foods stores. Only one Try before you buy The Prime membership program is designed to make clothing returns easier, with a return label included in the box. In terms of easy returns, Amazon is increasingly allowing customers to keep certain “returned” items while still refunding them.

“If I told you to keep the product, instead of calculating the cost and carbon effects of getting it back, I would look better as a company, wouldn’t I?” Tony Sciarrotta, executive director of the Reverse Logistics Association said. “Let people keep it and then it doesn’t count against us. But now you, as a consumer, what am I supposed to do with this, right?”

Amazon now has to deal with what to do with the returns on the back end.

Amazon spent nearly $152 billion for logistics in 2021 – almost a third of total net sales. This is up from $119 billion in 2020. Factor back in these costs, so anything Amazon can do to reduce those costs will help the company’s bottom line.

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

To that end, in 2019, Amazon launched a donation program that allows U.S. sellers to automatically donate excess merchandise and give it back to a network of 100,000 local charities through the partnership with non-profit network. Good360. The organization works with around 400 companies, including giants like Walmart, CVS and Nikebut said Amazon is the company’s biggest sponsor.

Good360 says it works with local charities to pick up in person at more than 230 Amazon locations, helping Amazon save on shipping costs as gas prices drop. high record. Nonprofits pay Good360 a fee to help cover freight costs.

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

“They won’t resell those items, put them on online auction sites, take them to the local flea market or the like. So protecting the brand integrity of our sponsors. We’re really at the heart of what Good360 does,” said Shari Rudolph, Chief Development Officer and CMO of Good360.

There are also potential tax breaks that can come with donating to nonprofits.

“There are a number of programs available,” says Rudolph. “I don’t have any visibility into what the Amazon team is leveraging, if at all.”

The secondary market also boomed making it easier to monetize used items. Between increasing pressure from young shoppers who want sustainable shopping optionsand a supply chain backlog causing shortages of new goods, Rogers of Colorado calculates the secondary market size in 2021 to be $688 billion, up from $649 billion in 2020.

As used items become a potential source of money, Amazon has launched two new programs to take home capital in 2020. It now offers sellers profit liquidation optionsend them to major third party liquidators such as Liquidity service to auction them on the secondary market.

Also in 2020, Amazon started giving sellers some Rate and Resell options for returning items. With this option, Amazon evaluates the returned item and gives it a score – Like New, Very Good, Good or Acceptable – and then resells the item on special sections of their website. Have Warehouse contracts for used goods, Amazon is renewed for refurbished items, Amazon Outlets for overload and a tongue in the cheek Daily deal site summon Rub! sell $10″Bag. “Amazon even offers customers gift cards to sell their used Amazon deviceswhich it can attempt to refurbish and resell.

“We expect these programs to help give a second life to more than 300 million units each year,” said Amazon’s Armor.

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

“Let’s assume a 20% return rate, that’s $93.8 billion in profits. If instead of getting the coin from a salvage dealer, you could get 30 cents on the dollar from the placement was strategically targeted, which got us up to $28 Rogers said.

“With $28 billion, having Woot or Amazon Outlet, it makes a lot more sense now because we’re really starting to get a return on our investment,” he said. “In the past, when we were small, it was like ‘This is trash, let’s get rid of it.’ Now, as we’re bigger, they’re scaling to the point of monetizing those profits, which is really irresponsible otherwise.”

But logistics experts conversely say that the best way to reduce waste and cut return costs is to prevent them from happening in the first place and then create a disadvantage for returns.

“The industry as a whole would bow to Amazon in a split second if Amazon started charging for returns because this would give them air protection to do the same,” Cohen said.