What really happens to Amazon returns

Sending back an online order has never been easier. It’s often free for the customer, with some retailers even allowing customers to keep the item while offering a full refund.

Amazon returns can be dropped off at Kohl’s, UPS or Whole Foods without boxing it up or even printing a label.

But there’s a darker side to the record number of returns flooding warehouses after the holidays.

“From all those returns, there’s now nearly 6 billion pounds of landfill waste generated a year and 16 million metric tons of carbon dioxide emissions as well,” said Tobin Moore, CEO of returns solution provider Optoro. “That’s the equivalent of the waste produced by 3.3 million Americans in a year.”

Moore says online purchases are at least three times more likely to be returned than items bought in a store. In 2021, a record $761 billion of merchandise was returned, according to estimates in a new report from the National Retail Federation.

That report says 10.3% of those returns were fraudulent. Meanwhile, Amazon third-party sellers told CNBC they end up throwing away about a third of returned items.

“Somebody has to pay for that,” said Micah Clausen, who sells party supplies and home goods on Amazon under a third-party store named Iconikal. “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.”

UPS predicts the 2021 holiday season will see a 10% increase in returns compared to the year-earlier period, which translates into 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 the e-commerce giant says it’s “working toward a goal of zero product disposal.” Last year, it launched new programs to give sellers like Clausen new options to resell returns, or send them to be auctioned off on the liquidation market.

Liquidity Services consumer marketing manager Meredith Diggs explains one way e-commerce has normalized shopping habits that lead to more returns.

“Wardrobing [is] where people will order the same thing in three different sizes to see which one fits and then they return the other two, not realizing that those other two most of the time don’t go back on that retailer’s shelves,” Diggs said.

“Categories like apparel see really, really high return rates in the 10s of percents,” added Raunak Nirmal, who used to work at Amazon and now runs an Amazon aggregator, Acquco, with more than 40 third-party brands. His return rate is closer to 3%.

“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,” Nirmal said.

When an item can’t be sold as new, Amazon gives the seller up to four options for what to do with returns: each with a fee: Return to Seller, Disposal, Liquidation, or (by invitation only for now) Fulfillment by Amazon Grade and Resell.

With the 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 go off 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% to 90% of the time. Or you could choose to dispose it,” Nirmal said.

Disposal is an all-too-common fate for returns from many of the biggest online retailers. In a statement, Amazon told CNBC, “No items are sent to landfill. We are working towards a goal of zero product disposal and our priority is to resell, donate to charitable organizations or recycle any unsold products. As a last resort, we will send items to energy recovery, but we’re working hard to drive the number of times this happens down to zero.”

“Energy recovery” often means it’s burned. In the words of the U.S. Environmental Protection Agency, it’s “the conversion of nonrecyclable waste materials into usable heat, electricity, or fuel through a variety of processes, including combustion, gasification, pyrolization, anaerobic digestion and landfill gas recovery.”

“The thing that really shocked me honestly, was the items that the computer system tells you to destroy,” said Shay Machen, a seasonal worker at an Amazon returns center in Mississippi. “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.”

Disposal of returns is a widespread practice in e-commerce. Luxury retail brands like Burberry have been criticized in the past for burning millions in unsold merchandise to protect their brands, a practice Burberry told CNBC it stopped in 2018. A Danish TV station reported H&M burned 60 tons of new and unsold clothes since 2013, a claim that H&M told CNBC was a misunderstanding. An H&M spokesperson said, “The products media referred to had been affected by mold or did not comply with our chemical restrictions.” Similar claims have hit Coach, Urban Outfitters, Michael Kors, Victoria’s Secret, and J.C. Penney.

“It’s the easiest thing to do and sometimes certain brands do it because, you know, they want to protect their brand and they don’t want lesser valued items out there on the market,” Moore said. 

Some brands, like Nike, have found creative ways to upcycle returns, making them into new items of value.

“Some of the shoes they can’t sell might end up being grinded up and turned into tracks,” Moore said. “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 it’s the best scenario for the environment.”

Amazon has a series of programs meant to do just that. For certain electronics like Amazon devices, phones and video games, it gives customers the option to send them to a certified recycler, or trade them in for Amazon gift cards. And since 2019, its FBA Donations program allows sellers to automatically offer eligible overstock and returns to charity groups through a nonprofit network called Good360. Amazon says more than 67 million items have been donated so far.

Amazon also announced two new re-homing programs last year, after British broadcaster ITV reported that the company was destroying millions of items like TVs, laptops, drones and hairdryers at one U.K. warehouse.

First, there’s Liquidation, which Amazon now offers sellers as an option instead of disposal.

Amazon and other major retailers partner with liquidation marketplaces like Liquidity Services and B-Stock Solutions, which auction off unwanted inventory to resellers by the pallet or even truckload.

“You can recover about 5% of your sale price if your product can get liquidated,” Nirmal said. “And at the end of the day, it will end up in someone’s hands who can hopefully use it.

YouTube creators like Hope Allen have built a following from finding online deals, and liquidation pallets have become a popular trend. Last year, she paid $575 for a pallet of Amazon returns on Liquidation.com supposedly worth almost $10,000 and unpacked it on her channel, where she goes by HopeScope.

“There were definitely some items in the pallet that were 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 a $300 coat,” Allen said.

“For one of our clients one time, I think we auctioned something like 42 truckloads of floor tiles in one lot,” said B-Stock Solutions founder and CEO Howard Rosenberg. “We’ve sold lots of cellphones that have been north of a million dollars in a single auction.”

Liquidations can go to resellers, who then offload items at flea markets or on sites like Craigslist and eBay. Allen sells the items she doesn’t keep on Poshmark or donates them.

“It’s like a fancy version of dumpster diving, but slightly more promising, safer and more legal,” Allen said.

Amazon is offering some sellers another option, but it’s by invitation only until later this year.

Under the FBA Grade and Resell program, Amazon gives items a grade like New, Very Good, Good or Acceptable, then resells it on special sections of its site. These sections include 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.”

Watch the video to learn more about where online returns really end up.