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  • 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