Amazon has really been a
game changer in the reverse logistics world because of
how easy the returns are from all those returns. There's now nearly £6
billion of landfill waste generated a year and 16
million metric tonnes of carbon dioxide emissions. That's the equivalent of
waste produced by 3.3 million Americans in a
year. The reason the circular
economy exists is to make sure these items find a
home and keep it out of the landfill system. I have 113 stops today, so
I'm going to start with this one. Then I go up. Then down, up, down, up,
down, up, down. The idea that a driver feels
like he or she can't eat lunch or go to the bathroom
is a problem. I've been tired, exhausted,
long days. People are hitting folks in
crosswalks. They are hurting their own
bodies because they're so afraid of losing their jobs
because they have to get these routes done. What's going on? Is your
girl Charlene, the Queen, coming to you guys with the
video of the day in the life of an Amazon delivery
driver? I have 113 stops today, so I'm going to
start with this one. Then I go up. Then down, up, down, up,
down, up, down. Delivering packages for the
world's largest e-commerce company is a monumental
job, especially with this month's annual prime day
sales event. I've been tired, exhausted,
long days. Charlene Williams and
115,000 other drivers are part of Amazon's solution
to the most expensive part of a package's journey,
getting it that last mile to customer doorsteps. This is where I used to load
out to ten right there. We spoke with current
drivers and took a ride with former driver Adrian
Williams to see where she delivered for Amazon. From
November 2019 to July. 2020, I would average
between like 150 to 180, sometimes 190 packages. Since 2018, Amazon has been
building out its network of these independent
contractors, delivery service partners or DSPs,
with more than 2000 of them across the U.S.. Now, DSPs
helped Amazon reach notoriety for extremely
fast shipping. There's a lot of aspects of
the job that are really enjoyable. You get a lot of
exercise. The customers are really
happy to see you. They're getting whatever
the heck they ordered. But there's things that
need to be fixed. From urinating in bottles to
running stop signs, routes that lead drivers to run
across traffic dog bites and cameras recording inside
vans at all times. Dsp drivers have voiced big
concerns, largely tied to the relentless workload
required to meet Amazon's one day shipping promise. The expectation is Just go,
go, go, go, go at your own cost. Historically, Amazon relied
heavily on UPS, the Postal Service and to a lesser
degree, FedEx for the heavy lift of last mile delivery
was 2013. They had a holiday season
was a fiasco in terms of late and missed deliveries. A lot of it had to do with
weather. A lot of it had to do with
Amazon dumping massive amounts of volume at the
last minute on UPS and to a lesser extent, FedEx. But it was at that point
that Jeff Bezos said, we can't entrust this business
entirely to other people. So Amazon built an in-house
network called Amazon Logistics. It's grown to
include everything from semi trucks to Amazon airplanes,
individual flex drivers. And since 2018, fleets of
vans run by delivery service partners or DSPs. Amazon pretty much has
control over the operation. It's Amazon's vans, it's
Amazon's insurance. They're providing it at a
discount. Amazon wants entrepreneurs,
they need drivers. They want to control as
much of the delivery process as they can. These small contractors
allow Amazon to oversee deliveries in regions all
over the country without directly hiring any
employees. Amazon fights tooth and nail
to maintain the status quo that these are contractors,
they're not employees, because if they are
employees, then you've got to pay them benefits.
You've got to pick up their expenses for uniforms,
trucks, what have you. And then Amazon's cost
structure changes. And if Amazon's cost
structure changes, so will yours. They have built up
their operation very, very quickly, largely because
they were able to build a last mile network using
third party DSPs instead of having to go out and hire
all these people and put them on the books
themselves. Amazon Logistics also
allowed Amazon to avoid paying outside carriers for
the majority of shipping. Amazon now delivers nearly
two thirds of its own packages through its
logistics programs like DSP. We estimate that Amazon
roughly spends in a 350 to $4 a box to deliver. This compares to UPS and
FedEx is average revenue per unit at about 10 to $12. So we think it can be a
meaningful savings to Amazon do this themselves. Control over its own
deliveries allowed Amazon to make one day shipping the
norm in 2019. Although the pandemic
caused significant shipping delays, the number of prime
members recently reached 200 million. Since the early
days of Amazon Logistics, bigger independent
logistics companies have also been under contract to
deliver for Amazon. But in 2018, Amazon went
after a wider regional reach by launching the DSP
program with special deals for small businesses, with
fleets of 20 to 40 vans and 25 to 100 employees. To get the program off the
ground, Amazon purchased 20,000 dark blue Mercedes
sprinter vans to start leasing them to DSPs at a
discount. It offered 10,000 grants to
existing Amazon employees Black, Latinx and Native
American entrepreneurs and military veterans trying to
launch a DSP. The DSP model is separate
from Amazon Flex, an even smaller business model in
which independent gig workers make between 18 and
$25 an hour driving individual routes on
demand. Unlike flex drivers, DSPs
have Amazon provided discounts on things like
fuel insurance uniforms and electronic package scanners
known as rabbits? The DSP is responsible for
almost everything else, from maintaining the vehicles to
hiring drivers and providing pay, benefits and overtime. It's cheaper. It gives them
more flexibility. They don't have work rules
to abide by. You, the contractor, want
to provide benefits to your drivers. Go ahead. Amazon will not do that. Amazon offers terrific
deals to people. One of the reasons they're
able to do that is they don't have the cost
structure that a UPS has. From washing vans to
replacing vans to paying for workers that get hurt. They can put it on a DSP
owner and they don't have to pay for it. While UPS, FedEx and the
Postal Service directly employ drivers, Amazon's
contractor model isn't unique. Well, Amazon has
about 2000 DSPs. Fedex Ground has around
7500 of what it calls independent service
providers. What Amazon is doing is a
little bit different in that they're using DSPs that are
also kind of professional delivery companies, but
maybe a little more mom and pop and a little smaller in
nature. The DSP is responsible for
recruiting and hiring drivers fast pace. You're not really dealing
with anybody. You're doing it by yourself
with the occasional manager boss calling you, telling
you something that you have to do. I mean, I guess I'll
say Amazon is the best job I've ever had so far. Drivers pick up their
vehicles at a designated lot or Amazon warehouse, then
line up and drive in to load up with boxes organized
into color coded bags. All my back. They're over
here. And then I have my
oversight over here mainly on the shelves, and I got
some on the floor. Each package is labeled with
yellow stickers that assign them a chronological order
for drop off. I normally always sort my
first bag while I'm just waiting, and that helps me. Like when I get to my first
couple of stops, everything's already sorted
so I don't have to go through and report
everything and take more time when I'm actually on
the class. Some DSPs also have the
bigger walk in style delivery trucks like those
used by UPS jockey Nash drives one of those for a
DSP in Richmond, California. She wasn't comfortable
appearing on camera. It's so much bigger. It's more room. You can
spread your package out in the van. You have to stack. The package is way harder. Dsps also lease unmarked
white vans for their drivers, although these
don't have shelves. Any time you stop, any time
you turn, all your packages will just fall all over the
place on the ground, and then you're done and then
you're just rummaging through things. And then
that also lands the problem of slowing you down. Amazon sets the routes and
delivery loads of up to 400 packages per driver per
day. Using the Flex app. I have left 111 packages. So if I click on this map,
you can kind of see my route for today. Amazon estimates it costs as
little as $10,000 to start a rdsp. Amazon pays the rdsp
per route and says annual profits can range from
75000 to $300000. But the Rdsp business can
be a tough one. Amazon is not about making
money for anyone but Amazon. It's very hard for a
contractor to generate a lot of profit based on what
Amazon is charging per parcel. And also the
workload is very, very intense ten, 12, 14 hours a
day, a lot of stops, a lot of deliveries. Cnbc reached out to several
Rdsp owners, although none would talk on the record. Despite requests, Amazon
also did not provide interviews with Rdsp owners
or drivers during the pandemic. Amazon sales have
smashed earnings expectations, and it's
hired more than 400,000 people. But DSPs didn't
always share in the success. Some turned to federal aid
to make it through receiving at least $1,000,000 from
the Paycheck Protection Program. But the pandemic
was certainly a popular time for drivers to join the
program, like Sharleen Williams, who started
driving in April last year. So I just debriefed from my
route today and Amazon has some snacks up for us. 1st October 2020 Survey of
thousand 500 delivery drivers found that 63%
joined in the last six months, according to
Indeed.com. Amazon driver pay averages
around $18 an hour, about a dollar 50 above the
national average. Sharlene Williams makes $15
an hour. Adrian Williams made $20 an
hour. Jacki Nash makes 2025 an
hour. Nash is trying to get a job
at UPS. They pay way more. They top out at $38. They got raises every six
months. They do not slave you with
all these packages and their union who does not want to
work for a union and their benefits are excellent. Ups drivers belong to the
Teamsters. Meanwhile, union presence
at FedEx is minimal because DSPs are contractors. It's hard for them and
their drivers to unionize. You will never have Amazon
approach the same model as UPS does because Amazon
would have to price prime at like two $50 per person,
not being subject to union work rules. Union wages gives them a
lot of flexibility to pivot on a dime, and they do. The arms length relationship
also gives Amazon the power to sever the contract with
a DSP or a driver at any time. This provides Amazon
some insulation from the inevitable risks of the
shipping industry, like botched deliveries,
accidents and even deaths. In 2016, an Amazon driver
struck and killed an 84 year old grandmother in Chicago. Her family brought a
lawsuit against Amazon and the contractor alleging
that Amazon put excessive pressure on drivers to
deliver on time. Two more deaths occurred in
2018. The little corners that you
cut are very dangerous for both you and the community
around you. People are bused in their
cars, driving way over the speed limit. People are
running through stop signs, running through yellow
lights. Everybody I knew was buckling their seatbelt
behind their backs because the time it took just to
buckle your seatbelt, unbuckle your seatbelt
every time was enough time to get you behind schedule. A 2019 ProPublica report
found Amazon's contract drivers were involved in
more than 60 serious crashes since 2015, at least ten of
which were fatal. In court, Amazon has
repeatedly said it's not responsible for the actions
of its contractors. Delivery is also an
inherently dangerous business for drivers from
any company. Of the 5333 occupational
deaths in the US in 2019, more than 1000 of them were
drivers, according to one report by a labor union
coalition that analyzed data from the Occupational
Safety and Health Administration. Amazon DSP
workers experienced severe lost time injuries at
nearly three times the UPS rate in 2020. Amazon holds mandatory
safety meetings for all warehouse employees before
each shift, but outsourcing driving to DSPs takes away
Amazon's ability to control these kinds of day to day
operations. Instead, it relies on
technology. Amazon tracks safety
metrics with its mentor app, which scores drivers on
behavior like speed, braking and use of mobile devices. It uses collective driver
scores to rank a DSP from poor to fantastic, plus
offering bonuses for high scoring DSPs. It was more of an emotional
drain, like a mental drain, because you were always
afraid of like, what was my mentor score going to say
for the next day? Did I get caught doing
something wrong? Did something get scanned
incorrectly? If you can see right here,
mine is that for something? And they say my driving on
Thursday was risky. I enabled cameras in. Some vans, have four lenses
to watch the road, both sides of the vehicle and
the driver. An Amazon instructional
video says it's recording 100% of the time. I just don't feel like I
should be watched 8 to 10 hours out of the day. They say is for safety,
which I can kind of see like if we were to get into an
accident, they want to see what we were doing inside
the van. But it just seems like it's
more so to kind of make sure we weren't in the wrong. They could try to pin it on
us. The camera's A.I. software
can activate audio alerts if it detects one of 16
different safety issues, such as failing to stop at
a stop sign where a seatbelt or pay attention to the
road. Distracted driving. If I make a hard turn or
something or try to grab a phone or something like you
can hear them say distraction. Some drivers told us the
cameras do provide a sense of safety under certain
circumstances, like around aggressive dogs or
customers. The camera that's facing out
that can see the road. I feel that's a good part
of the camera because if you pull up to a customer's
house, you know there is an altercation. If the
altercation is on the camera feed, you know, they can go
back, review the camera and then take action that way. Shailene Williams has been
bitten by dogs on her routes once she had to go to
urgent care, but waited until after she delivered
all her Amazon packages. The first leg it bit. It didn't break skin or
anything, but the second time the dog bit me, it
definitely broke skin. I made sure to tell the
homeowner and everything and then I had to go to urgent
care after my shift. I wasn't going to cause one
of my colleagues to have to come save me. So yeah, I finished my
route and then went went after. In a statement, Amazon told
CNBC Safety is our top priority, which is why
we've been investing in driver safety for years,
including industry leading, camera based technology in
our vehicles that reduces accidents by 48%. We also use sophisticated
technology that plans drivers rouse, and in fact,
more than 90% of drivers finish their routes before
their scheduled time. So they've been driving out
at a steady pace like. This since 6 a.m.. Yeah, that's a lot of
deliveries. Yep. With Prime Day this month,
Amazon is likely to see record breaking sales, and
this means lots of deliveries and pressure on
the DSPs and their drivers. When new people would come
and they'd be like, Oh, I'm doing so good, we'd be
like, Slow down. Because if you deliver 120
packages today, you're going to get 124 tomorrow and it
never ends. We can work ten hour shifts. My heaviest day was I had
199 stops, about 320 packages. Sometimes I would
have to take all the. Oversize packages out just
to find the one that I need. Drivers follow routes on the
Flex app, which are determined by Amazon's
algorithms, which also set package loads and delivery
order. Some drivers say the routes
have made them walk across busy highways carrying
armloads of packages and that the GPS has issues. The row had me backtracking
today a lot in the beginning, so I kind of got
behind schedule. But ain't nothing. I'm still going to finish
before my ten hour shift is over. I've had days where the GPS
was horrible the whole time because their GPS doesn't
work in places like Vacaville. Locked there. Blacks can't get in, can't
get in. Gate take a private road. I've had days where the
stops were so close together and it was triple digits
outside and so my AC could never heat up and I got
heatstroke and had to get taken off my route by the
ambulance. I'm going to pop out of
here. Some of that stuff can
really be mitigated by just having a route designer
that says, if we're going to put these people in the
worst crime filled neighborhoods, maybe we
should let them be there in the daytime instead of 10
p.m. in November because it's
Christmas time, and that's when Amazon workers are
more apt to get carjacked. Thank you so much for
giving me this in the daytime because I would
have literally thought I was getting killed tonight. In other instances, drivers
have reported they don't have time to find a
bathroom. There were times where I
didn't drink anything all day. I didn't eat anything
all day because that might cause you to go to the
bathroom. When you have to leave your
room to go use the bathroom by the time you're back at
your room. That's like a whole 30 or
45 minutes that you're taken away because you're driving
14 minutes or 8 minutes to go try to find a bathroom,
and then that stops your whole flow of delivering
your packages. Now, that's why some people
are urinating in cups and plastic bottles. The only thing with that,
though, is they don't necessarily throw them out
of the vans or throw them in the trash or pour them out. They just kind of leave
them, which is definitely disgusting. You know,
getting into the vans the next day and seeing
somebodies pee bottle sitting behind the seat or
sitting in the cup holders. Some of my coworkers have
also found people had urinated in hand sanitizer
bottles. So you can only imagine
what it would feel like if you went to use the hand
sanitizer and found out that it was pee. That was a talk at our stand
up meetings almost every single day, like empty your
vans at the end of your shift. Nobody wants to
empty your pee bottles. The conversation was never
don't pee in bottles. That was never the
conversation. The conversation was throw them
away. Cnbc went to one gas station
near an Amazon warehouse in the Bay Area, where the
manager says drivers throw pee bottles away after
their shifts. She didn't want to give her
last name or appear on camera in the interest of
protecting her job. My guess station attendants
were complaining about the urine bottles in the trash
constantly. It was a lot of dripping. It smelled really bad. And the dumpster area, it
was leaking all over the frickin parking lot and
everything because it was always liquid in the
garbage cans. Should Amazon be doing
something differently? Yes. Maybe they can provide
porta potties around the cities for them because I
think AC Transit does that also in areas they know
that it's trouble using the restroom. Amazon initially denied that
workers urinate in bottles, but later apologized. It admitted that drivers do
have trouble finding bathrooms, but said it's an
industry wide issue and is not specific to Amazon. With Amazon, you have a
different route every day. One day you might be in a
place where bathroom is plentiful and the next day
you may be in the middle of nowhere. And that's where I
think it's different from like FedEx and UPS, because
at least those people can plan their day. There's no way to have any
control over your day with Amazon holding my pee for
like 2 hours because I'm in the boondocks and there's
nowhere to go. Amazon reserves the right to
deactivate drivers for things like public
urination and abandoning customers packages in
outside unsecured locations. Williams decided to quit
after a particularly bad day last July. I had like the day from Hell
and I just lost it. I had gotten like charged
by somebody pit bull, and then I got locked in
somebody's gated community. It was like for like 5
minutes. But when you're on this
strict time crunch and that's when my coworkers
was like, Hey, did you hear that? Three drivers got
sick and they told our boss not to tell anybody. And I was just like, I. Quit. A new feature of the flex
app pings drivers when they're supposed to take
breaks and reroutes them back to the warehouse if a
driver has been logged on for too many hours. I wouldn't say it's kind of
any riskier or any worse or any more of a challenge
than, honestly, you know, any other form of delivery. Amazon is also working to
make its vehicles safer. It ordered 100,000 electric
delivery vans from Rivian Automotive that are all
scheduled to be on the roads by 2030. Features include exterior
cameras that give the driver a 360 degree view. Strengthened driver's side
door. Larger floor space for
moving around packages in the back of the van and
wrap around tail lights for better brake detection. I think Amazon owes it to
the contractors and the drivers to make sure that
the driver is operating safely. And that includes
not forcing the driver to make 25 stops in a specific
time frame that compels the driver to take risks behind
the wheel. Adrian Williams suggests
that an Amazon employee be physically present in each
region who is in charge of listening to driver
feedback and improving routes. There's the destination on
my left across this water. Maybe it's too big of an
ass to say put a route designer in every
warehouse, but break that down regionally because
you're really putting drivers in dangerous
situations by having route designers only in Seattle
who don't understand the areas they're putting
drivers in and they're putting drivers in really,
really dangerous situations. Drivers need people to talk
to to go back and say, like, hey, this didn't work. You drove me into a lake,
it'd be nice and I'll drive into this lake next time. An Amazon spokesperson told
CNBC it's working on addressing gaps in its
routing system and improving capacity planning, hoping
to give drivers fewer stops. They have to ease up on the
time stuff happens on the road, and it's not always
the driver's fault, but the idea that a driver feels
like he can't eat lunch or go to the bathroom, he or
she is a problem. People are hitting folks in
crosswalks. They are hurting their own
bodies because they're so afraid of losing their jobs
because they have to get these routes done. So
either hire more drivers or just say maybe things won't
get delivered in two days. Sending back an online order
has never been easier. It's often free for the
customer. Refunds can be instant. You can drop off
Amazon items at Kohl's, UPS or Whole Foods without
boxing it up or even printing a label. Sometimes
Amazon even tells you to keep it, but the truth is,
there's no such thing as a free return. Somebody has to pay for
that, and it's falling back on either Amazon or the
third party seller. It comes out of their
bottom line and inevitably makes prices go higher. In 2021, $761 billion worth
of merchandise was returned, and more than 10% of those
returns were fraudulent. And sellers told us they
simply end up throwing away about a third of returns. From all those returns,
there's now nearly £6 billion of landfill waste
generated a year and 16 million metric tons of
carbon dioxide emissions. That's the equivalent of
waste produced by 3.3 million Americans in a
year. Ups predicts a 10% increase
in returns compared to last holiday season, meaning
more waste and expense for all online retailers. At the head of the pack,
Amazon has received mounting criticism over the
destruction of millions of items. Now Amazon says it's
working toward a goal of zero product disposal. It started refurbishing,
reselling and now sending pallets of returns to be
auctioned off on the booming liquidation market. I thought I was getting a
return box. Turns out I got a £423
pallet coffeemakers eight and nine couch cover. Number three, couch cover
number four. As unwanted holiday gifts
flood the market, we wanted to find out what really
happens to e-commerce returns before the rise of online
shopping returns were simpler. Buy from a store,
return to the store. The item is inspected and
usually put back on the shelf. But returning online
purchases is far more complicated and at least
three times more likely, says Tobin Moore, CEO of
Return Solution Provider Up Toro. E-commerce results in 25% of
all goods sold being returned, brick and mortar
is about seven and one half percent. With online holiday sales up
more than 11% over last year. Returns numbers are
breaking records during the holiday shopping season
from November 14th through January 22nd, UPS said it
will handle 60 million returns, up from 55 million
last year. It estimates that one in
four Americans expect to make a return this season
and 41% expect to return three or more items before
the pandemic in 2019. Up to an estimated 67% of
consumers preferred to return to online purchases
in a store by October 20, 20. 60% preferred shipping
items. Back this year, we're
expecting $120 Billion of returns from the holiday
season, and that number was at about $100 Billion
pre-COVID in 2019. The convenience of
e-commerce has normalized shopping habits that lead
to more returns. Wardrobe buying, where
people will order the same thing in three different
sizes to see which one fits. And then they return the
other to not realizing that those other two most of the
time don't go back on that retailer shelves. Categories like apparel see
really, really high return rates in the tens of
percents. Oftentimes we're looking at
something closer to 3%. Sellers we talked to like
former Amazonian Rudnick Normal, who now runs an
Amazon aggregator with 40 plus third party brands,
average a 1 to 3% return rate. Amazon wouldn't share
overall marketplace returns numbers, but they're higher
than Amazon anticipated. Here's an item we've got
Garland. Micah Claussen has been selling party supplies
and home decor on Amazon since 2007, now at $10
Million in annual sales there. After Christmas, he
got a message from Amazon that some of his unsold
inventory elf hats, to be specific, would be stored
in temporary on site locations because of higher
than expected volumes of customer returns. I guess it's sitting out in
a trailer in their parking lot and they can't grab it
easily and ship it back to us. Amazon has since resolved
the storage issue for Claussen, but it also just
raised its seller fees. On January 18th. We're making $4 on a sale. It was a four pack, so
making a dollar a hat, anything I don't sell, I
lose a buck 51 just to get them back in my warehouse.
I'm not paying storage on that. Gets to the point
where that's going to probably end up being a
discontinued item. Amazon has a lenient return
policy for the holidays, allowing most items
purchased since October 1st to be returned through the
end of January. Amazon and its sellers like
Joe Stephanie also increasingly let customers
keep returns. So if you buy, let's say, a
999 sticker, if a cost is, let's say $3 to make it,
it's obviously a lot cheaper than the 5 to $6 it would
cost to get the item back officially to us. The return process can cost
up to 66% of the items original price and as the
supply chain crunch boosts the price of transport. And
manpower to that cost of returns is up more than 6%
from last holiday season. Last year, we estimated,
cost us between 75,000 and 100,000 in returns. So you're talking about
some serious money. And then there's bad actors
who take advantage of the increasingly no questions
asked returns process, something American Martinez
has seen during her returns center work at Amazon,
where she's worked every holiday season since 2017. I had some Beats headphones,
somebody said. Those are expensive and it
looks like the box was not open. But if you look
closely, the factory seal had actually been open up. And so I just opened it up. I looked inside the box and
there was just a cheap set of headphones inside. It's a shower curtain. Like some of the stuff looks
and smells like it was actually used and then they
just went and returned it 30 days later. Oh, no, those are definitely. Worn. What's happening more
and more now is that those people are being tracked
and you won't have the same returns privileges in the
future. Legitimate or not, each
return goes on a winding, costly, reverse logistics
journey adding to carbon emissions at each node. This is true even when an
item bought on Amazon is returned to a store because
there's no place on the cold shelf for that item not
originally sold by Coles. So almost all online
returns get sent to a warehouse specifically
designed to handle them. When it gets to our
facility, it's coming off the trucks, straight on to
those conveyors, and we're the first people to get it
and open it and see what's inside. Sweetheart Returns centers
like the one where Shea Matson works are usually
older, designed buildings larger than forward
logistics facilities, but with lower ceilings because
varying sized pallets makes returns unsafe to stack. They're concentrated in
centrally located industrial markets like Phenix, Las
Vegas, Ohio or Tennessee. It's going to show the
actual customers notes and everything in there saying,
well, why they didn't want this item or couldn't keep
the item or whatever. You look at the item and
figure out what it is. Is it the right item? Is it opened? Is it closed? Is it used? Is it damaged? You know
what's going on? Megan says they have about a
minute to give items an initial inspection. Then algorithms determine
what happens next. The computer will go through
a series of questions that you have to answer about
the item. It could be looking at it. It could be looking for
factory seals or damages, spills, leaks, all that
kind of stuff. And then dependent on what
it comes up with with those questions, the computer
will determine where this item needs to go. If it's a new product,
Amazon would allow that product to get resold on
the listing as new, but it really needs to be in
pristine condition for that to happen. And that's more
rare than you would expect, even if the customer hasn't
used the product at all. When it can't be sold as
new, Amazon gives the seller up to four options for what
can be done with a return each with a fee return to
seller disposal liquidation or by invitation only for
now FBA grade and resell, which we'll get into later. With that first return to
seller option, the return leaves the Amazon warehouse
for several more legs on a truck, plane or cargo ship. It heads back to the seller
for further processing. Then it could head back to
another Amazon warehouse for sorting and repacking, then
on to a new customer who could always choose to
return the item again. You're essentially forced to
decide if you want to recall that inventory to your
warehouse, which is an expensive process,
repackage it yourself and then ship it back into a
warehouse to sell. Which doesn't make sense. I would say 80 90% of the
time. Or you could choose to
dispose it. Disposal is an all too
common fate for returns from many of the biggest online
retailers. Amazon says it sends no
items to a landfill, but as a last resort sends items
to energy recovery. This means it's burned. Or, in the words of the
Environmental Protection Agency, the conversion of
non recyclable waste materials into usable heat,
electricity or fuel through a variety of processes,
including combustion gasification,
prioritization, anaerobic digestion and landfill gas
recovery. Lower value items get
destroyed more often. You'll see fashion items
potentially get destroyed, actually a fair amount if
they're not new. And consumer electronics
items, you'll see 70% of them can't go back to stock
because the seal is open. The thing that really
shocked me was the items that the computer system
tells you to destroy. There were things that I
felt like were still worthwhile. Like I had a
book come back, it was a children's book, and the
customer said that it was smashed upon arrival and
bent and it was not. And no matter what I put
into the system, it said, destroy the item. And that was kind of heart
wrenching a little bit. You know, I had a couple of
video games come through like that same thing
because the factory seal was broken, even though there
was nothing wrong with the item it said to destroy it. And we see it just as a cost
of doing business on Amazon last year. Stephanie says he did $8
million of sales of official branded non apparel items
like stickers, flags and license plate holders on
Amazon. We're a licensee of some of
the biggest brands out there, like the NBA, the
NHL, 675 colleges, universities, musical acts
like Ozzy Osbourne. How do you think the NBA,
the NHL would feel if there's like Laker
stickers, you know, being liquidated? They probably
wouldn't like that. For Stephanie's, merchandise
disposal is often the best option. Because you just can't tell
if someone took like a Chicago Bulls main logo
sticker off the sheet of stickers and put it back
on. So those almost always get
thrown out. Sellers say the fee that
Amazon charges for disposal can be a third the cost of
other options. We save extra money by just
doing the disposal option because they don't charge
us as much to dispose of item. Disposal of returns is not
just an Amazon problem. Luxury retail brands like
Burberry have been criticized for burning
millions in unsold merchandise to protect
their brands. A Danish TV station
reported H&M burned 60 tons of new and unsold clothes
since 2013. Richemont, the owner of
high end jewelry brands like Cartier, admitted to
destroying hundreds of millions worth of watches
in two years. Similar claims have hit
Urban Outfitters. Michael Kors, Victoria's
Secret and JC Penney. Yeah, it's the easiest thing
to do. And too, sometimes certain
brands do it because they want to protect their brand
and they don't want lesser valued items out there on
the market. One solution is to speed up
the reverse logistics process. On average, we see that it
can take 30 to 60 days for a retailer to receive a
return process. It figure out where it
needs to go. By the time that gets back
to stock, you've missed the season and it's either not
carried anymore or it's marked down 50%. Facing Criticism for
destroying Merchandise. Some brands have also found
creative ways to upcycle returns, making them into
new items of value. You're turning their purses
into yoga mats or some of the shoes they can't sell
might end up being grinded up and turned into tracks. It does take energy to
grind and turn items into other items. I think first and foremost,
if you can sell it in its original form, that's the
best scenario for the environment. Indeed, Amazon says it's
working toward a goal of zero product disposal for
certain electronics, like Amazon devices, phones and
video games. Amazon gives customers the
option to send them to a certified recycler or trade
them in for Amazon gift cards. And since 2019,
Amazon's FBA donations program allows sellers to
automatically offer eligible overstock and returns to
charity groups through a nonprofit network called
Good 360. Amazon says more than 67
million items have been donated so far. Brands are embracing that. Selling new stuff, which
used to be looked on as as just dirty, is now actually
environmentally the right thing to do. And it's
embraced a lot by the to the younger generations are
buying many more used items. But in June, British
broadcaster ITV reported that Amazon was destroying
millions of items at one UK warehouse, things like TVs,
laptops, drones and hairdryers. In response,
Amazon added two new options for sellers meant to rehome
returns rather than dispose of them. First, there's
liquidation. Historically, we have taken
those returns, that unsold inventory, those sorts of
things from those online retailers, sold them by the
truckload to resellers. So your Craigslist or eBay
resellers, your flea market vendors. You can recover about 5% of
your sale price if your product can get liquidated. And that's a great, great
option because then you're not throwing it away. And at the end of the day,
it will end up in someone's hands who can hopefully use
it. So all this stuff is
supposedly worth almost 10,000. And guess how much
I paid for it? $575 a 94% savings. But let's open it. Youtube creators like Hope
Alan have built a following from finding online deals
and liquidation pallets have become a popular trend. There were definitely some
items in the pallet that it was actual trash, but then
there were other items like an UGG robe or like some
nice heated winter gear that I'm like, really? They
didn't think this was worth restocking. This is like a
$300 coat. So Amazon and other major
retailers like Target, Walmart, Costco, Best Buy,
Macy's, Wayfair and more partner with liquidation
marketplaces like be stock which auctions off unwanted
inventory to resellers by the pallet or even. Truckload for one of our
clients. At one time, I think we
auctioned something like 42 truckloads of floor tiles
in one lot from a value standpoint. We've sold lots
of cell phones that have been north of $1,000,000 in
a single auction. It's like a fancy version of
dumpster diving, but slightly more promising,
safer and more legal good jacket, though. Tag's still
on it. 50 bucks. Amazon also partners with
Liquidity Services, which allows regular customers
like Allen to bid on pallets of returns on liquidation
or to pick up individual items at a new direct to
consumer all surplus steals warehouse that opened in
Phenix in October. All over auctions started at
$5. It is single item. We have a lot of furniture,
a lot of baby products, baby gates, quite a bit of
electronics, and then outdoor and fitness, lots
of bikes. The fourth and final option
Amazon is trying out is an invitation only grade and
resell program for certain returns. Amazon gives the
item a grade like new, very good, good or acceptable,
then resells it on special sections of its site.
There's warehouse deals for used goods. Amazon renewed
for refurbished items, Amazon outlet for Overstock
and a tongue in cheek daily deal site called Woot that
sells a $10 bag of crap and describes itself as a wild
outpost on the fringes of the Amazon community. These are a really good way
of handling returns in a more sustainable way rather
than destroying them or putting them in a landfill. It's definitely changed my
mind as far as how much I shop now. When I buy
something and I don't like it, I usually try. Figure
out something else to do with it, like give it to a
family member or resell it to somebody that I know
would like it rather than like return, return all the
time. Inside this massive
warehouse in Texas. The aisles aren't lined
with your typical merchandise. This would be the antithesis
of your traditional e-commerce fulfillment
center. This is a bundle of snowflakes where every
individual box might have a different set of
accessories, might be slightly different in
condition quality. Every aisle is filled with
returns from Amazon, Target, Sony, Home Depot and more
in the process of being liquidated. These liquidators are coming
in and they're buying up all of this product in bulk. They're then packaging it,
pallet sizing it and reselling it. So it's turned into a much
bigger portion of the industry than we've ever
seen before. Liquidation used to exist on
the fringes of retail. The liquidation marketplace
used to be two people in a truck coming into the back
of a warehouse store with cash on the barrel. Try to have special deals
for special people. It was very unsavory, very
unregulated. We would shake hands with
people at our trade shows and you'd want to go wash
your hands afterwards. It was a low life buyer's,
and now it's been raised to a new platform by companies
like Liquidity Services. We went behind the scenes at
Liquidity Services to see how the only publicly
traded liquidation company is helping turn the
industry around. We've sold road paving
equipment, entire gymnasium floors, scoreboards, postal
trucks. We've sold delivery
vehicles for utility companies. Retail is in the midst of a
transformation fueled in part by the pandemic. Online shopping was up more
than 11% this holiday season, and with returns on
average three times more likely for online
purchases. A record $761 Billion of
merchandise was returned last year. Returns that
aren't sent for liquidation are often destroyed,
incinerated or sent to landfills. The reason the circular
economy exists is to make sure these items find a
home and keep it out of the landfill system. Now, amid mounting pressure
on retailers to do better and a supply chain backlog
causing a shortage of new goods, there's a boom in
the secondary market. Liquidation hasn't just
gone mainstream. It's a $644 billion
business. And in 2008, it was 309
billion, and now it's 644 billion. So it's more than
doubled over the last decade. This warehouse is 130,000
square feet, and we'll do between 15 and 20
truckloads of product a day through this building. We take you on an exclusive
tour inside the wild, booming business of
processing and reselling excess and unwanted goods
on the secondary market. With slim profit margins
and unpredictable quality of second hand inventory. Liquidation hasn't always
been the business opportunity it is today. A lot of this used to be
controlled by the Mafia. It's a good way to to hide
money, honestly, because nobody's looking at
returns. Especially 40 years ago, no one was looking at
returns. But in 2021, more than 16
and a half percent of all merchandise sold was
returned, up more than 56% from the year before. For online purchases, the
average rate of return is even higher at 20.8%, up
from 18% in 2020. Processing a return can
cost retailers up to 66% of an item's original price. I would suggest that it's
possible part of the inflation is these huge
amount of returns that have to be sold at a loss is
detracting from the profitability that a
company normally has and they have to raise their
prices. And then there's the
environmental cost. Us returns generate an
estimated 16 million metric tons of carbon emissions
and create up to £5.8 billion of landfill waste
each year. And retailers like Amazon,
which says it doesn't send any items to a landfill,
incinerate some returns as a last resort. But
sustainable shopping options are a growing priority for
younger shoppers. If buying one used item, it
saves 82% of its carbon footprint, the boom and
liquidation, and is really fueled by consumers wanting
to. Buy those items. And so it makes no sense to
throw them in the garbage. They should be safely. Put back into circulation. What's become a huge pain
point for one retail sector is big business for
another. Today, there are thousands
of liquidation companies, the biggest ones contract
with the Amazons and targets of the world to receive
returns in bulk than sought process and sometimes
refurbish them, then auction them off as individual
items, pallets or truckloads to other resellers or to
individual consumers, like a growing segment of YouTube
creators who've gained a following by unboxing
returns pallets. It's like a fancy version of
dumpster diving, but slightly more promising,
safer and more legal. A good jacket, though. Tags still on it. 50 bucks. Other resellers have side
hustles on sites like eBay or Poshmark. Some of the auctions I've
done, nobody else is bidding. And that's when I
get really nervous that maybe this box isn't going
to be that good. And then there have been
other ones where people are just going crazy and it's a
full out bidding war. So this item here, it's
probably going to go where and auction off for what
kind of price. This probably has anywhere
from 10 to 15000 of retail value. And we're going to
sell that for anywhere from 3 to 5000. Bill Andric founded
Liquidity Services in 1999 with $100,000 of his
savings. My father and I used to pick
up used books. Fast forward to the start
of eBay. We realized that a
marketplace model can create value for virtually any
type of used item. In 2000, Liquidity Services
had its first major sale a $200,000 marine vessel for
the state of Georgia. By 2002, liquidity services
reached profitability. By 2006, it was listed on
the New York Stock Exchange, where it's seen a
significant rise during the pandemic. Today, Liquidity
Services handles returns for clients like Amazon, as
well as the Postal Service's unclaimed mail items left
behind at TSA checkpoints. Think £14 of assorted
knives and out of service military vehicles and other
gear. Seven distribution centers
focusing on this circular economy challenge for
e-commerce retailers with over a million square feet
of space. And we've now eclipsed over
4.8 million buyers on the platform. When pallets of returns
arrive at this Liquidity Services warehouse in
Garland, Texas, just outside Dallas, the first step is
to unwrap it and figure out what's inside and recycle
all that packaging. This machine here is a
Styrofoam identifier and it takes a full pallet and a
half of Styrofoam and it condenses it down into this
£20 block of melted Styrofoam, which then they
send out to a third party which blows it back up into
packing Styrofoam again, cardboard. We probably do about 200
tons a year of cardboard, recycled 20 tons of
Styrofoam a year, and about that same amount in
electronics recycling. We scan an item to come in
and make sure that. They can put as the
manifest. Items are sorted by workers
like Carlotta Barnes, who's been at the Garland
warehouse for nine years. We take it out and make
sure. That the product is okay to
sell. When items are ready for
resale, they're wrapped back up. We've had a couple of
Christmas trees. We got some decorative
pillows, some furniture, a desk, maybe. How much is something like
this? Probably going to auction
for, so. So it's going to start for
$100 on liquidation. And that the market is
really going to set what there what that is going to
sell for. They're stacked into aisles
awaiting their turn for auction on one of liquidity
services marketplaces. There's liquidation where
pallets of returns and some individual items are
auctioned off to the highest bidder. Second, typically
for direct sale of individual items and give
deals for those unclaimed packages, TSA items or
outdated military equipment. While Liquidity Services is
one of the biggest liquidators, there are
thousands of companies in the booming space. One is good by gear, which
sells gently used baby and kids gear as an alternative
to Facebook marketplace or Craigslist. This space in
particular really warns a. Trusted third party. Because. You know, it's stuff that
your baby is going to sleep. In or sit in and. Eat it. Kristen Langfield
started good by gear after her youngest, who's now
six, outgrew a particularly bulky item. It's $150 to buy it brand
new. And it was amazing for the. Few months that she used it. And then after that zero use
for it, you know, and this big eyesore in the middle
of your room. Another big player in the
space is B stock, which runs branded liquidation
marketplaces for huge clients like Amazon,
Walmart, Home Depot and Costco. We sold somewhere in the
vicinity of 150 million individual items last year. Howard Rosenberg founded B
stock after six years at eBay, where he saw the
benefits of specializing in liquidation for others at
scale. So companies typically don't
want to spend a whole lot of time and effort focused on
that little slice of the pie. They want to focus on
the 99% slice of the pie. Liquidated returns, reenter
the circular economy through individual selling on
Craigslist or eBay. Pawnshops, flea markets and
thrift. Stores wanting to reuse,
wanting to have less of an impact on the environment. They're also getting a good
deal, right? Like we're being trained
not to pay full price. And if you can kind of do
both things at the same time and get a good deal, I
think that's what all the younger generations are
about. But a lot of returns can't
go right back out for resale. You can see it still has
plastic on it from the original manufacturer. And so we know this is a
very new unit, never been used, but it was damaged
during shipping. And what we can do is
replace this glass with a donor glass from a unit not
functioning. The refurbishment department
is a big part of Liquidity Services business and
there's a lot of TVs here. How many are you doing
every day, would you say? We do about 100 TVs a day
and they sell for anywhere from 60 to 70% of retail. My youngest has come and,
you know, she's amazed by the machines and she's
asked a couple of questions. Stephen Boykins relocated
with three of his four kids to manage the Garland
warehouse. He's been with the company
six years. I try to explain it to her
to where she understands. And it's like, hey, when
you have kids, this directly will affect you and your
kids. This little piece of the
operation that no one thinks about will have a vast
effect over the next 50 to 60 years. Gen-z shoppers like Boykins
kids have led a push for more sustainable retail
options, boosting the overall popularity of
secondhand shopping across all generations. In a survey of 1000
consumers, 81% of baby boomers participated in
resale in 2021, up from just 39% in 2019. Refurbished electronics
have also gained popularity because of the shortage of
new goods. When we get our refurbished
product, we get really good recoveries back from it. So probably 80 to 100% of
recoveries depending upon the seasonality in the
market. But right now, the market
is very strong because of the supply shortages on the
forward side. Refurbished consumer
electronics like noise canceling headphones or HP
laptops are in high demand, but also high end
refurbished items like the machines used to make
microchips. We've seen Fortune 500
companies access use equipment in our
marketplace because the time to ship is shorter in the
circular economy than originating a newly
manufactured goods and putting it on a vessel,
transporting it across the ocean to a port that's
likely backlogged for 6 to 8 months. And as the secondary market
grows, many retailers are now selling refurbished
items directly. Amazon has entire sections
of its site devoted to this. There's warehouse deals for
used goods. Amazon renewed for
refurbished items, Amazon outlet for Overstock and a
tongue in cheek daily deal site called Woot that sells
a $10 bag of crap. Best Buy now has an online
outlet where it sells open box appliances and TVs, and
HP has an outlet with refurbished computers and
more. We're going to remanufacture
it and remarket it with an HPE warranty, or we're
going to sell it as is to a certified contracted
partner who will then either remanufacture it themselves
and sell it with their third party warranty or part
harvest it and and sell the parts. The liquidation boom has
spawned another trend to hundreds of bargain. Bin stores are popping up
all over the country with names like Dirt Cheap and
Treasure Hunt Liquidators, where dozens of customers
line up, sometimes even camping overnight to get
first pick after weekly drop offs of liquidation
pallets, they dig through bins and bins of returns in
search of trending items they can flip for a profit. Stores like Big Lots,
Bargain Hunt, Ollie's Bargain Outlet, etc. all of these stores and
then eBay and even Amazon has gotten into it. So
they're selling the returns back to consumers because
again, 90% of the time, nothing wrong with it. Liquidity Services has its
own take on the direct to consumer trend at the
company's new All Surplus Deals warehouse that opened
in Phenix in October. Customers pick up items
they've won in online auctions that usually start
at $5. This is especially helpful
for liquidating bulky items like kayaks, but something
like that is going to. Be very expensive to ship
now because. It's so big. That's the beauty of our
fulfillment center network. We can take these items
back directly from consumers and then have consumers bid
online and pick up at our warehouse. Ingrid plans to open a
second all supplies deals warehouse in Dallas later
this year. The more people discover
that, hey, there's nothing inherently wrong with this
product, I trust the marketplace that sold it to
me. I can save significant
dollars that's really benefiting all parties.
