Returns are a major headache for
customers, and they drain companies of millions of dollars in unwanted
inventory and extra labor. Returns create billions of pounds of waste
and entire walls of shame in warehouses around the world. But Amazon is trying to
change all of that. Where Amazon absolutely leads is in trying
to be the easiest, the lowest friction return experience for the
consumer and thereby win customer loyalty and increase customer purchases while
they tackle some of these other big institutional infrastructure
problems around returns. From robots to in-person returns, the
world's most valuable company is redefining the returns process. And as e-commerce grows, smaller companies
are finding ways to make money off returns. We wanted to find
out how does Amazon process returns? And what's the company doing to
protect the environment and its bottom line? Returns are by far
the largest challenge to e-commerce, and I think to commerce
in general for both retailers and manufacturers. As more consumer spending
is shifting from in-store to online, it's really just exacerbating the
size of the returns problem that we all have to deal with. Across
the entire Amazon marketplace, you know, they now sell over
800 million products. So this is a scale that the world
has never had to deal with before. There's even an annual conference devoted
entirely to solving the problem created by returns, namely inefficient reverse
logistics is a huge loss for companies,. In a traditional brick
and mortar store we might have average return rates of 8 to 10 %. But in e-commerce, it's totally common to see
20 or 30 % of all purchases get returned. Forrester Research estimates
that e-commerce will see $207 billion worth of returns this year. Amazon is about half of all e-commerce,
so slightly more than $100 billion dollars in returns happen in
North America just with Amazon. So that's a huge expense. And the returns process
matters to customers. According to data compiled by Invesp,
79% of consumers want free return shipping and 67% check the returns
page before making an online purchase. All this has led to the current
trend of free return shipping, which is now offered by almost
half of retailers. Where the challenges is, is can you do
it in a way where the unit economics don't kill you? The difference with Amazon is they
have the scale and they've trained their investors to accept that in the
beginning they may do things at a loss. What that gives them the flexibility
to do then is to invent. They bring a lot of talent to the
table and they figure out how to optimize and create efficiencies that will
allow them to have the unit economics work to their favor and
ultimately get those margins back. The complicated reverse logistics journey starts
when you decide to return an item. Amazon gives you 30 days from
the day you receive an item to bring it back or put it in the mail. Generally you get 30 days. And generally they give your money
back and even include paying for shipping both ways, right? Which has inspired other companies
to have to follow suit. And with every return, Amazon
wants to know why. 34 % say the size,
fit or color was wrong. 21 % say the item was
damaged, broken or no longer functional. 14 % say the item wasn't as described, 10
% simply didn't like it and 9 % changed their minds. Amazon sees on
their scoring system that you're a customer that abuses
the return policy. It is possible that they'll charge
you a fee for that out-of-reason return, whereas for a good customer
they might continue to offer that return for free. Whether a return is
free also depends on the method you choose for that return. That menu is
going to vary slightly depending on your geography and the item. A popular thing that they'll do is you
put it back in the box, you seal the box and we'll send someone to your
house to pick up the box and they're going to charge
you for that option. If you live in a place where
there's literally no other options, they may offer that for free. But in most cases, they're going to say,
if you bring it to a UPS store, it's free. But for certain items
where the reverse logistics costs way outweigh the potential value of the
item, if you're not someone that they've identified as a return abuser, they
very likely are going to tell you to just not
worry about the return. The returns process is now so easy
that customers have been caught gaming the system. One man reportedly scammed
Amazon out of $370,000 by sending back boxes of properly weighted dirt
instead of the returned products. Amazon has also banned customers who appear
to be conning the system by making too many returns. In all, return fraud cost to the
retail industry $18 billion in 2017. You have a secret credit score that
says how profitable and how good a customer you are for that retailer. A particularly egregious and common version
of this is there's a huge spike in TV sales the week before the
Super Bowl, and there's a huge spike in TV returns the week
after the Super Bowl, right? So increasingly your own behavior can
impact the returns experience that you get. But even those items that
are legitimate returns can create a lot of pressure, specifically
on Amazon workers. For every package you return from
your doorstep, there's a delivery driver who has to pick it up and get
it started on that journey back to the warehouse. It's those boots on the
ground that cost Amazon the most. As more of Amazon's overall volume gets
shifted from UPS and the U.S. Post Office to Amazon's own delivery
network, they're also able to handle a lot more of the returns
themselves and the logistics of picking something up at someone's house and
taking it back to the fulfillment center are actually harder and more
expensive than the logistics of delivering something to the home. Amazon has one big way to relieve
the pressure on its drivers and its bottom line: use you
for the delivery. In July, Amazon expanded its partnership with
Kohl's to allow items to be returned without a box at any
of Kohl's 1,100 stores for free. If they have to go to 100
hundred consumers' houses and collect one box for a return, that's much more
expensive than having those hundred consumers all go to one Kohl's. Kohl's needs traffic. Retail
traffic is down. You've got to find a way
to get people in the stores. They're now getting the Amazon customer
into their store who then has money in their pocket after a return. It's a great opportunity. So far, Kohl's says
results are promising. The net impact of the traffic and
sales we're getting and then considering the support that we're leveraging. So in terms of the support inside
of our stores, reverse logistics, all of that is expected to be a
positive EBIT contribution for 2019. So we're early days, but we're highly encouraged
and we do see this as a profitable venture for the company. If the cost of me handling the return,
which by the way they're going to help pay for, is lower than getting
another pair of shoes sold to the person walking in, then it's
ultimately a net gain. In the world of Amazon partnerships, this
Kohl's deal is almost unique in how favorable it is for both parties. According to data compiled by Invesp, 62
% of customers are more likely to shop online if they can
return an item in store. With Amazon, you can also return items in
person without a box to one of 2,800 Amazon Hub locker locations, which can
often be found at Whole Foods or college campuses. Depending on your location, you can also
return items in person at UPS stores and a growing number of
Amazon Books and Amazon 4-star stores, although this does sometimes
cost a fee. Other retailers are trying to catch
up with Amazon's in-store return options. Walmart has actually created a
separate return line so that you don't have to wait in line behind
other people trying to get Walmart service. Target has set up dedicated e-commerce
space in the front of the store. at Nordstrom's Local stores in
New York and L.A. you can now return items purchased
online from other retailers like Macy's and Kohl's. And FedEx announced this month
that consumers can now drop off their online returns at thousands of
Walgreens stores and print their return labels in store too. UPS also unveiled a similar
partnership this month, allowing pre-labeled returns at 1,100 Michaels
stores in the U.S. Amazon and everybody else is constantly
trying to enhance that user experience and figure out how
do you best do that? But you still have
the reverse shipping. You have to pay for
that shipping to go back. You have to deal
with the item itself. How do you file it away? How do you deal with it?
This creates another big challenge. The reality is it often ends up in
a place of limbo, a place that some retailers call the wall of shame. Sometimes we've seen it as high as like,
you know, 50, 60 ,000 square feet of just all items that are just
all returns, all mistakes, all the stuff in there. And we're talking
about thousands of items. We sometimes talk about millions of
dollars in inventory that is just sitting there and it's just costing them too
much to try to fix that issue that they just push it aside. That's what happens. It's at the
wall of shame where L.A.-based startup inVia says its 400
robots deployed in U.S. warehouses are making
a big difference. The robots can be programmed to process
returns in a way that's custom to the needs of a company. Customers would
approach us and say, what can you do to just fix my wall of shame? That's what we want the most. So with our robots, as the items come
back we're actually able to go in and file them away so we're taking
away that pain point of moving the items back. InVia is now programming
its robots with separate software entirely devoted to returns. For example, after Christmas, there might
be a lot of Christmas returns, which nobody's probably going to
order til next year. And we'll go file it
away pretty far away. These robots are meant to offer
competitors an alternative to Amazon's Kiva robots, which were used by stores
like Walgreens, Staples and The Gap before Amazon bought Kiva in 2012. A major difference: inVia's robots can handle
small totes up to 40 pounds, often carrying one individual item,
while Amazon's robots move entire 1000-pound shelves all at once. InVia says this more finite control helps
cut down on one big reason for returns: the warehouse worker accidentally
boxing the wrong item. We only present the
person with one item. If you look at the Kiva case, you have
a big rack with a bunch of items. There's a guided pointer that points you
but you can still make a mistake. You know, you're trying to
move these things in seconds. So with our robots, we only
present them with one choice. So there's a very, very low
probability that they'll make a mistake. Amazon says its Kiva robots are not
used in areas that handle returns. InVia wouldn't disclose if it's been
approached by Amazon about acquiring its robotic return software but did confirm
it's been in talks with a lot of Amazon's competitors. So far inVia's robots are
being used in Rakuten's U.S. warehouses and smaller companies like
discount e-commerce retailer Hollar. Once returned items are sorted by human or
robot, it can still be a major problem to find the best use or them. This can lead to a huge surplus
of inventory, wasted fuel emissions and unnecessary packaging to handle it. In a nutshell, returns are
hard on the planet. As much as five billion pounds of waste
gets thrown away as a result of these returns that can't be resold. So to put that in perspective, that's
250,000 garbage trucks full of goods that people bought, half of which from
Amazon, and then ultimately had to be thrown away because
it couldn't be resold. The environmentally unfriendly disposal of
unsold and returned inventory has made big news. Burberry famously
revealed last year that it incinerated 28.6 million pounds of unsold and returned
products, a practice it's since stopped. Earlier this year it was
reported that a single Amazon facility sent 293,000 products to a garbage
dump in just nine months. And after a documentary found Amazon
destroyed three million products in France last year, the country vowed
to outlaw the destruction of unsold consumer products by 2023. That, of course, is
an ecological disaster. What's super interesting, of course,
is consumers are increasingly sensitive to that. Even when destroying the product is
the best economic option, retailers are having to pivot away from
that because consumers don't like doing business with these
ecologically unfriendly companies. In response, Amazon launched a
program called Fulfilled by Amazon Donations. Starting September 1st, donations
became the default option for all sellers when they choose how to
dispose of their unsold or unwanted products stored in Amazon
warehouses in the U.S. and the U.K. And that's entirely
a result of customer sentiment pivoting away from Amazon. According to Narvar's 2019 consumer report,
52 % of shoppers said they would go in-store to return items
if it helped reduce the environmental cost of returns. Amazon also has a program called
Amazon Warehouse, which sells renewed goods at a discounted rate. Another big tool Amazon has to help
cut down on wasted inventory: a massive amount of data
on customer behavior. They can look at information about you
and and other folks like you, and they can then have, you know,
their technology can make predictions that says, hey, this product, there's gonna
be others that want it. There's demand for it. So if we get it
back and we get it back in the region where it was shipped, we actually
think we're going to be able to ship it to a buyer in that same spot. But then there's all that packaging
waste created by returns, which Amazon is trying to reduce. Kohl's and
the Amazon pickup locations generally are using poly bags and other kinds of
containers when they aggregate all of these returns together to
dramatically use less packaging. Amazon has also replaced many
cardboard boxes with more lightweight plastic mailers, although these mailers
aren't recyclable in curbside bins. It claims the plastic mailers have
reduced packaging waste by 16 % and eliminated the need for more than
305 million shipping boxes in just 2017. And last month, CEO Jeff Bezos
pledged to make Amazon carbon neutral by 2040. While Amazon works to cut down the
waste and high cost of returns, there's a whole other side to it: a
growing market for companies and individuals that make money off returns. It's sort of a new business that
kind of started from this e-commerce that nobody ever thought of. One example is a
company called Happy Returns. It has 700 return centers at malls
and inside stores where customers can come return items from about
30 popular online stores. Happy Returns gets paid by its
retail partners to aggregate all its returns. Saving money on that
last-mile delivery person who would otherwise need to
make multiple stops. It claims to save e-commerce retailers 20
to 30 % on shipping costs. The store or mall also pays Happy
Returns a fee, hoping the concierge service will bring shoppers
into its stores. There's also a market of third-party
companies that buy returns in bulk, repackage them, sometimes with added accessories,
and resell them for a profit. So you can go to some
of these third-party companies and and buy things that have been returned, kind
of almost like a salvage process. And the really fascinating thing is some
of that ends up back on the Amazon marketplace. There's also a
growing number of companies specializing only in
reverse logistics. GENCO, for example, was bought and
rebranded as FedEx Supply Chain. It helps liquidate returned inventory by
sending it to smaller markets like Brazil. It finds a market or
place for donation for products that won't sell in the U.S. Think: the Super Bowl champions
t-shirt of the losing team. And of course there are
discount retailers like T.J. Maxx that buy returned and unsold merchandise
in bulk and then market it up and sell it to consumers. So we should absolutely be paying
attention to the returns market. And there's significant economic opportunities
for companies that are able to help retailers with this problem. Meanwhile, Amazon itself is still working
to make returns more profitable by making the process easier and
keeping its customers coming back. Amazon is definitely not perfect at
this whole returns process and there are places where other retailers might
be more ecological or do something better. But on the whole, Amazon is driving
a lot of the innovation in the returns market. So more so than
reducing their costs, they're saying let's make it really easy and hassle-free for
customers to return and that will make customers trust us more and more
confident that they can buy from us instead of one of our competitors.
