Amazon's plan to tackle its significant returns issue

The e-commerce giant is facing a massive problem due to the growing number of returns, which is negatively impacting the planet.

In 2021, the U.S. spent more on national defense than on merchandise returns, with $741 billion spent on defense and $761 billion returned to retailers.

In 2021, the National Retail Federation estimates that 16.6% of all merchandise sold during the holiday season was returned, up more than 56% from the year before. For online purchases, the average rate of return was nearly 21%, up from 18% in 2020. Given that Amazon had $469 billion of net sales revenue last year, its returns numbers are likely to be substantial.

According to Optoro, the reverse journey of U.S. returns generates 16 million metric tons of carbon emissions and up to 5.8 billion pounds of landfill waste annually.

Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada, stated that there are billions of dollars of waste resulting from consumerism run wild.

"Reverse logistics are always challenging because the merchandise, in most cases, cannot be resold as it was originally, and the most expedient pathway is often into a dumpster or landfill," Cohen stated.

According to CNBC, Amazon claims that it does not send any items to landfills and instead uses "energy recovery" as a final option.

Cohen stated that energy recovery involves burning something to generate heat and energy, and that the disposal of goods is seen as a transformation from one form of matter to another. However, he believes that to the extent they are doing this, they are not fully transparent.

Amazon aims to eliminate product disposal, but it hasn't set a specific date to achieve this goal.

In an exclusive interview with CNBC, Amazon's head of North American returns, Cherris Armour, stated that they promote a second life for all products returned to them.

Armour stated that the majority of the items received are resold as new and used, returned to the seller or supplier, or donated.

Items that can't be recovered or aren't recyclable due to legal or hygienic reasons or product damage are the only ones that can have energy recovery and Armour added.

Amazon welcomed Armour 12 years ago as a night shift operations manager at an Indianapolis fulfillment center. She stated that Amazon had long discussed the goal of zero product disposal.

Easy returns are good business, but then what?

Researchers have found that consumers love easy returns.

In 2019, Amazon made millions of items eligible for free and easy returns, which may have influenced the 2018 survey results showing that 96% of online shoppers would return to a retailer with a good returns experience and 69% were deterred from buying if they knew they'd have to pay for return shipping.

According to Zac Rogers, who ran returns for an Amazon subsidiary called Quidsi from 2010 to 2012 and is now an assistant professor of supply chain management at Colorado State University, Amazon has revolutionized the reverse logistics industry with its simple return process.

Traditional retailers like Walmart are now implementing similar policies to compete, which creates brand loyalty and increases the likelihood of customers signing up for Amazon's Prime. Prime, in turn, drives the flywheel of the company.

Amazon has expanded its return options to 18,000 locations, including the ability to drop off items without a box or label at some locations. Additionally, Prime members have access to a Try Before You Buy program that makes returns for clothes even easier, with return labels already included in the box. Amazon is also allowing customers to keep some "returned" items while still refunding them.

Tony Sciarrotta, executive director of the Reverse Logistics Association, stated, "If I instruct you to retain the product rather than considering its cost and carbon footprint when returning it, I will appear more favorable as a company, won't I?" He added, "Let's allow the individuals to keep it, which would not negatively impact us. However, as a consumer, what do you do with this item now?"

The problem of managing returns on the back end is now Amazon's responsibility.

In 2021, Amazon spent approximately $152 billion on logistics, which accounts for nearly a third of their net sales. This is an increase from the $119 billion spent in 2020. Since returns are included in these expenses, any measures Amazon takes to reduce return costs will positively impact their profit margin.

Cohen stated that although they will present their actions as being for the sake of the planet, their true motivation is for their own self-interest. However, he emphasized that their decision will ultimately be based on the economic benefits.

In 2019, Amazon introduced a donation program that enables U.S. sellers to automatically contribute excess and returned goods to a network of 100,000 local charities via a partnership with nonprofit organization Good360. Good360 collaborates with approximately 400 companies, including major corporations such as Walmart, Target, and The Home Depot. However, Amazon is Good360's largest corporate donor.

Good360 collaborates with over 230 Amazon facilities for direct pickups, reducing Amazon's transportation expenses as gas prices reach record highs. Nonprofits pay Good360 a fee to cover freight costs.

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

Good360's chief development officer and CMO, Shari Rudolph, stated that the organization will not resell donated items, put them on online auction sites, or take them to local flea markets, as protecting the brand integrity of their donors is crucial to their mission.

Donating to a nonprofit may offer tax deductions.

Some programs are accessible, according to Rudolph. He has no insight into what the Amazon team is utilizing, if anything.

Secondary market

The secondary market for secondhand items is experiencing a boom, with the 2021 market size calculated at $688 billion, up from $649 billion in 2020. This is due to increasing demand for sustainable shopping options among younger shoppers and supply chain backlogs causing a shortage of new goods.

In 2020, Amazon introduced two programs to help sellers rehome their returns. Now, sellers can choose to liquidate their returns by sending them to major third-party liquidators, such as , to be sold on the secondary market.

In 2020, Amazon introduced a new option for select sellers to evaluate and resell returned items. The returned item is given a grade, such as Like New, Very Good, Good, or Acceptable, and then resold on specific sections of its website. Amazon offers Warehouse Deals for used goods, Amazon Renewed for refurbished items, Amazon Outlet for overstock, and Woot! for daily deals. Additionally, Amazon offers customers gift cards to trade in their used Amazon devices, which it can try to refurbish and resell.

According to Amazon's Armour, these programs are expected to revive over 300 million units annually.

The former Quidsi employee, Rogers, explained that smart business is simply a matter of understanding the market and adapting to it.

If we assume a 20% return rate, that's $93.8 billion of returns coming in. If we could get 30 cents on the dollar from strategic targeted disposition instead of pennies from a salvage dealer, that would increase our returns to $28 billion, said Rogers.

Now that we're at a larger scale, it makes more sense to keep Woot or Amazon Outlet because we can monetize the returns, which would be irresponsible not to do," he said. "Before, when we were at a small scale, we viewed those returns as trash and got rid of them.

To minimize waste and reduce return expenses, experts recommend preventing returns from occurring initially and implementing disincentives for customers to return goods.

If Amazon were to charge for returns, the industry would follow suit, according to Cohen.