How Amazon plans to fix the huge returns problem

Amazon deals with a Rapidly growing number of revenue Which is causing a huge problem for the e-commerce giant and the planet.

A survey conducted by the National Retail Federation found a $761 billion in merchandise returned to retailers in 2021. This amount exceeds what the United States spent on national defense in 2021, which was $741 billion.

Amazon won’t share total return numbers, but in 2021, the National Retail Federation estimates 16.6% of the total merchandise Returns sold during the holiday season, up more than 56% from the previous year. For online purchases, the The average rate of return was even higher, at around 21%.higher than 18% in 2020. With $469 billion net sales Last year’s revenue, Amazon’s revenue numbers are probably staggering.

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

“We are talking about billions and billions and billions of [dollars of] The waste that is a byproduct of consumerism is running out, said Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada.

“Reverse logistics will always be bad because, in most cases, merchandise cannot be resold as it was originally,” Cohen said. “The most convenient way is in the landfill, to the landfill.”

Amazon told CNBC that it is not sending any items to landfills but is relying on “energy recovery” as a last resort.

“Energy recovery means burning something to produce heat, to produce energy. And you justify getting rid of the goods as a conversion from one form to another,” Cohen said. “So much so that they do that I don’t think they are fully revealing it.”

Amazon said it is “working towards a zero-product elimination goal,” although it won’t set a target date for reaching that goal.

“We encourage Second Life on all the products we receive,” Cherris Armor, president of Amazon North America Returning, said in an exclusive interview with CNBC.

“This comes in the form of selling the majority of the items we receive. They are resold as new and used, returned to the seller or supplier, or donated,” Armor said.

Armor added that energy refunds are only for “items that we cannot return or that cannot be recycled” due to legal, health 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 that the zero-disposition goal was something they had been talking about on Amazon for many years.

Mostly cited in 2018 Survey of 1,300 online shoppers They discovered that 96% would return to a retailer if they had a good returns experience, and 69% were deterred from buying if they knew they would have to pay for return shipping. In 2019, Amazon Free & Easy Extended Returns for millions of items.

said Zack Rogers, who conducted revenue for an Amazon subsidiary called Quidsi from 2010 to 2012 before becoming an assistant professor of supply chain management at Colorado State University.

“And now you have traditional retailers like Walmart or Goal Kind of implement similar policies because that’s a really big part of how you compete on the retail side. “It creates brand loyalty, and makes you more likely to sign up for [Amazon’s] Prime, and Prime is really the thing that’s driving that company’s flywheel.”

Amazon now allows returns at 18,000 locations, including the option to drop items without a box or label at kohlAnd UPS and some all foods stores. there Try before you buy A program for Prime members designed to make returning clothes easier, with return labels already included in the box. At the end of easy returns, Amazon is increasingly allowing customers to keep some “returned” items while still giving them back.

“If I asked you to keep the product, instead of calculating the cost and carbon impact of getting it back, I sound better as a company, right?” said Tony Ciarota, CEO of the Reverse Logistics Association. “Let’s let people hold it and then it doesn’t count against us. But now, as a consumer, what do I do with this thing, right?”

Amazon now has to solve the problem of what to do with revenue on the back end.

Amazon spent Nearly $152 billion on logistics in 2021 Almost a third of net sales. That’s up from $119 billion in 2020. Revenue is a factor in these costs, so anything Amazon can do to reduce these costs will help the company achieve its bottom line.

“They will do it for their own good, even though they will phrase it in the name of saving the planet,” Cohen said. “But at the end of the day, their work will be based on the economics of what we see.”

To that end, in 2019 Amazon launched a donation program that allows US sellers to automatically donate excess and return items to a network of 100,000 local charities through a partnership with a non-profit network. good 360. The organization works with about 400 companies, including giant companies such as WalmartAnd CVS And nikeBut he says Amazon is its biggest donor.

Good360 says it coordinates with local charities for direct pickups at more than 230 Amazon facilities, helping Amazon save transportation costs as gas prices drop. Standard heights. Nonprofits pay Good360’s fee to help cover shipping costs.

They also agree to certain rules before accessing Amazon donations.

“They’re not going to resell these items, put them on online auction sites, or take them to local flea markets or that kind of thing,” Shari said. “So protecting the integrity of this brand for our donors is really fundamental to what Good360 does.” Rudolph, Chief Development Officer and Director of Marketing, Good360.

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

“There are some programs available,” Rudolph said. “I have no vision of what, if any, the Amazon team would benefit from.”

There is also a boom in the secondary market that makes it easy to make money on used items. middle Growing pressure from younger shoppers who want sustainable shopping optionsand supply chain backlog Caused a shortage of new goods, Rogers of Colorado calculated the secondary market size for 2021 at $688 billion, up from $649 billion in 2020.

As used items become a potential source of income, Amazon has launched two new revenue-return programs in 2020. Now it’s giving sellers Payout Filter Optionand sent to major external liquidators such as Liquidity Services to be auctioned on the secondary market.

Also in 2020, Amazon started offering a grade and resale option to select sellers. With this option, Amazon rates the returned item and gives it a score — such as new, very good, good, or acceptable — and then resells it in special sections of its site. there warehouse deals for used goods, Amazon renewal for refurbished items, Amazon outlet To pile up, tongue in cheek Daily Deal Website call Woot! that sells for $10litter bag. Amazon offers customers gift cards for Trade their used devices from Amazonwhich can try to refurbish and resell.

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

That’s just smart work, explained Rogers, a former Quidsi employee.

“Let’s say a 20% rate of return, so $93.8 billion of revenue comes in. If instead of getting pennies on the dollar from a rescue trader, maybe you get 30 cents on the dollar from the strategic target act, that pushes us to $28,” Rogers said.

“At $28 billion, with Woot or Amazon Outlet, that now makes more sense because we’re really starting to get a return on our investment,” he said. “Previously, when we were on a small scale, it was like, ‘This is rubbish, get rid of it.’ Now, as we get older, they scale to the point where they are monetized from those returns, in fact it would be irresponsible not to do that.” .

But reverse logistics experts say the best way to reduce wastage, and reduce the cost of revenue, is to prevent it from happening in the first place and then create disincentives to return the goods.

“The industry as a whole would bow to Amazon in a heartbeat if Amazon started charging for revenue because it would give them air cover to do the same,” Cohen said.