Subtitles section Play video Print subtitles 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.