This market is bigger than the U.S. defense spending, and even Amazon is targeting it

Financial Associated Press (Shanghai, editor Ma Lan) news that online shopping has become a way of life for more and more Americans. Behind the variety of goods, consumers' shopping choices and return rights are seen as the new moat of many e-commerce platforms. But this has given rise to new problems.

According to a survey by the American Retail Federation, a total of $761 billion in goods were returned to retailers in 2021, an amount that exceeded the U.S. spending on defense in 2021 ($741 billion).

Returns are becoming a problem that cannot be ignored in e-commerce, with cost burdens and environmental threats, making free and easy returns more criticized.

The scale of returns is expanding rapidly

According to the Retail Federation's estimates, 16.6% of U.S. sales in 2021 were returned, an increase of more than 56% over the same period last year; the average return rate for online shopping reached 20.8%, which is comparable to 18% in 2020.

For every $100 worth of merchandise returned, the retailer faces a $10.30 fraud loss. 68% of retailers have experienced a consumer returning the product after using it, and 56% have experienced receiving a returned product as a theft.

56% of retailers plan to hire more people to handle returns, with the most complained challenges being processing costs and scale increases, time-consuming tracking and processing of return documents, and so on.

In the report of the association, there is such a summary: returns are losses.

Cash, profit, and gross margins will all decline;

Labor costs rise because of additional inspection and restocking times;

Resulting in a decline in brand value, insufficient inventory and an increase in logistics costs;

Some returned items cannot be resold.

Returns are a selling point for businesses

A 2018 survey in the United States showed that 96 percent of customers would buy from the retailer again if the return experience was good, but 69 percent would abandon the transaction if they had to pay for return shipping.

This is also a big reason why Amazon has been committed to promoting a free, easy returns business model.

"Amazon actually changed the game in reverse (return) logistics because they were very easy to return." Rogers, an assistant professor of supply chain management at Colorado State University, said. He worked for Quidsi, Amazon's returns subsidiary, from 2010 to 2012.

For example, if a customer wants to buy a wardrobe, he can book three different sizes and different styles of wardrobes online, compare and leave the most satisfactory one, and the other two are unconditionally returned.

"It (this model) creates loyalty to the brand, making you more likely to sign up for (Amazon) Prime, and Prime is really the product that drives the company's rapid growth." Prime members enjoy free shipping.

Prime members also have a "try before you buy" program, which puts a return label directly into the box that comes in, making it easier to return.

Judging by Amazon's net sales revenue of $469 billion last year, the amount of returns the company could reach a staggering number in 2021.

After-sales pressure intensified

Easy returns, on the one hand, for e-commerce to stick to the source of customers, on the other hand, it increases the cost pressure on logistics and returned goods processing.

Cohen, director of retail research at Columbia Business School, said: "Reverse logistics is always bad because in most cases, goods cannot be resold as they are. The most convenient way is to enter the dumpster, or landfill. ”

For example, Amazon's policy makes it difficult to re-sell returned goods. "If it's a new product, Amazon allows it to be resold as a new item on the platform, but it has to be in pristine condition to work." It's a lot harder than you might think, even if the customer hasn't used it at all. Nirmal, who worked at Amazon, said.

Machen, a worker at Amazon's return center, said: "I brought back a book, it was a children's book. When the customer talked about the goods, it broke and bent. Later, no matter what I entered in the system, the system would say destroy the project, which was really heart-wrenching. ”

According to Amazon's third-party sellers, the returned products they eventually discard account for one-third of all returned products. They even have to pay Amazon a portion of the money to handle their own goods.

Goods that are not discarded will also incur new costs. Sellers are forced to pay for repackaging, restocking, and so on.

There are also some sellers, in order to protect the image of the brand and prevent low-priced products from impacting the market, often choose to burn it directly. Burberry has burned millions of dollars worth of merchandise in the past, but announced it stopped doing so in 2018. International brands such as H&M, Coach and Victoria's Secret have also carried out such operations.

Amazon's new approach

Amazon, which has strict goods management policies, has been criticized for destroying millions of items. Amazon also later announced that it would strive to achieve the goal of zero disposal of products.

Amazon claims not to send anything to landfills, but will use "energy recycling" as a last resort.

But Cohen commented, "Energy recovery means you burn something to generate heat, to produce energy... In terms of what they've done, I don't think they're fully honest. ”

Of course, before the last step, Amazon did a lot of other plans.

In 2019, Amazon allowed sellers to work with the nonprofit site Good360 to automatically donate excess and returned items to local charities. Good360 says it can pick up directly at more than 230 Amazon facilities, which could also help Amazon save on shipping costs. In addition, other nonprofits will also pay Good360 a fee to cover shipping costs.

Working with nonprofits could also lead to potential tax write-offs for Amazon, which could save you money.

In addition to donations, Amazon also withdrew from the new return program in 2020, conducting return clearing through third-party clearing agencies to facilitate the auction of goods in the secondary market.

Another plan is to offer a scoring and resale option for products from select sellers. Amazon evaluates and scores the returned items, which are then resold on the website.

Rogers, a former Quidsi employee, said: "Assuming the return rate is 20%, that's $93.8 billion. And now you can recoup about 30 cents of value for every $1 in these programs, and that's as much as $28 billion. ”

"Previously, when we were smaller, we felt like, 'This is garbage, throw it away,' but now we're scaling up to monetize the returned goods again. It would be irresponsible not to do so. ”

The previous burn-off shortage is worry-free, but it also causes potentially huge losses. For Amazon, diverting goods to different groups, although it takes more effort, can create new business points. At the moment of focusing on corporate social responsibility, its series of practices may also be more favored.

Still, some contrarian logistics experts say the best way to reduce waste and expense is to stop returns in the first place.

That said, returns are no longer free and easy.

Cohen also said that if Amazon starts charging return fees, the entire industry will look to it because it provides a strong reason for the industry to follow up.