The Hidden Costs Of Amazon Shipping And Returns

Amazon has really changed the game in the world of reverse logistics because of how easy

returns

are for all those

returns

. There is currently almost £6 billion of landfill waste generated each year and 16 million metric tonnes of carbon dioxide emissions. That's the equivalent of the waste produced by 3.3 million Americans in one year. The reason the circular economy exists is to ensure these items find a home and keep them 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 can't eat lunch or go to the bathroom is a problem.

I've been tired, exhausted, long days. People hit people in crosswalks. They are hurting their own bodies because they are so afraid of losing their jobs because they have to do these routes. What is happening? Is your girl Charlene the Queen coming to you with the day in the life of an Amazon delivery guy video? 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 the annual sales event this month.

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, taking it the last mile to the customer's door. This is where I used to carry up to ten. We spoke to current drivers and traveled with former driver Adrian Williams to see where he delivered for Amazon. From November 2019 to July. In 2020, I would average between 150 and 180, sometimes 190 packs. Since 2018, Amazon has been building its network of these independent contractors, delivery service partners, or DSPs, with more than 2,000 of them across the United States. Now, DSPs have helped Amazon achieve notoriety for its extremely fast

shipping

.

There are many aspects of the job that are really enjoyable. You do a lot of exercise. Customers are very happy to see you. They get everything they ordered. But there are things that need to be fixed. From urinating in bottles to running stop signs, routes that lead drivers to encounter bites from traffic dogs and cameras recording the inside of vans at all times. Dsp drivers have expressed major concerns, largely related to the relentless workload required to fulfill Amazon's one-day

shipping

promise. The expectation is just go, go, go, go, go on your own accord. Historically, Amazon relied heavily on UPS, the Postal Service, and to a lesser extent FedEx for the huge last-mile delivery effort in 2013.

They had a holiday season that was a bust in terms of late and missed deliveries. A lot of this had to do with the weather. A lot of this had to do with Amazon dumping huge amounts of volume at the last minute into UPS and, to a lesser extent, FedEx. But it was at that moment that Jeff Bezos said: we can't entrust this business completely to other people. So Amazon built an internal network called Amazon Logistics. It has grown to include everything from semi-trucks to Amazon planes to individual flex drivers. And since 2018, fleets of vans managed by delivery service partners or DSPs.

Amazon practically has control over the operation. They are Amazon vans, they are Amazon insurance. They offer it at a discount. Amazon wants entrepreneurs, it needs drivers. They want to control as much of the delivery process as possible. These small contractors allow Amazon to oversee deliveries in regions across the country without hiring employees directly. Amazon fights tooth and nail to maintain the status quo that these are contractors, not employees, because if they are employees, then they must be paid benefits. You have to cover their expenses for uniforms, trucks, whatever. And then Amazon's cost structure changes. And if Amazon's cost structure changes, so will yours.

They've built 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 third-party carriers for most shipping. Amazon now delivers nearly two-thirds of its own packages through logistics programs like DSP. We estimate that Amazon spends approximately $350 to $4 per box to deliver. Compared to UPS and FedEx, the average revenue per unit is about $10 to $12. Therefore, we believe it can be a significant savings for Amazon to do it 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, larger independent logistics companies have also had contracts to deliver for Amazon. But in 2018, Amazon sought a broader regional reach by launching the DSP program with special offers 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 begin renting them to DSP at a discount. It offered 10,000 grants to existing Amazon employees, Black, Latino 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 freelancers earn $18 to $25 an hour driving individual on-demand routes. Unlike flexible drivers, DSPs has Amazon offered discounts on things like fuel insurance uniforms and electronic package scanners known as bunnies? The DSP is responsible for almost everything else, from vehicle maintenance to driver hiring to pay, benefits and overtime. It's cheaper. It gives them more flexibility. They have no work rules to follow. You, the contractor, want to provide benefits to your drivers. Forward. Amazon won't do that. Amazon offers great deals to people. One of the reasons they can do this is that they don't have the cost structure that a UPS has.

From washing trucks to replacing them and paying workers who are injured. They can put it on the owner of a DSP and they don't have to pay for it. While UPS, FedEx, and the Postal Service employ drivers directly, Amazon's contractor model is not unique. Well, Amazon has about 2000 DSPs. Fedex Ground has about 7,500 what it calls independent service providers. What Amazon is doing is a little different in that they use DSPs who are also professional delivery companies, but maybe a little more family-owned and a little smaller in nature. The DSP is responsible for recruiting and hiring drivers at a rapid pace.

You're not really dealing with anyone. You're doing it alone and occasionally the boss calls you and tells you something you have to do. I mean, I guess I'll say Amazon is the best job I've had so far. Drivers pick up their vehicles at a designated lot or Amazon warehouse, then line up and drive to load boxes organized into color-coded bags. My whole back. They are over here. And then I have my supervision here mostly on the shelves, and I have some on the floor. Each package is labeled with yellow stickers that assign them a chronological order of delivery.

I usually always sort my first suitcase while I wait, and that helps me. Like when I get to my first stops, everything is already sorted, so I don't have to go through and report everything and take more time when I'm in class. Some DSPs also have larger delivery trucks, like the ones the UPS jockey uses. Nash drives one of those at a DSP in Richmond, California. She didn't feel comfortable appearing on camera. It is much bigger. It's more space. You can spread your package in the van. You have to stack. The package is much more difficult.

The Dsps also rent unmarked white vans for their drivers, although they do not have racks. Every time you stop, every time you turn, all your packages will just fall everywhere on the ground, and then you'll be done and then you'll be rummaging through things. And that also creates the problem of slowing you down. Amazon sets delivery routes and loads of up to 400 packages per driver per day. Using the Flex app. I have 111 packages left. So if I click on this map, you can see my route for today. Amazon estimates that it

costs

just $10,000 to start an rdsp.

Amazon pays the rdsp per route and says annual profits can range from $75,000 to $300,000. But Rdsp's business can be complicated. Amazon is not about making money for anyone but Amazon. It is very difficult for a contractor to make much profit based on what Amazon charges per package. And also the workload is very, very intense, ten, 12, 14 hours a day, many stops, many deliveries. Cnbc contacted several owners of Rdsp, although none wanted to speak officially. Despite requests, Amazon also did not grant interviews to Rdsp owners or drivers during the pandemic. Amazon's sales have exceeded profit expectations and it has hired more than 400,000 people.

But DSPs didn't always share the success. Some turned to federal aid to receive 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 of last year. I just filled you in on my route today and Amazon has some snacks for us. October 1, 2020 A survey of 1,500 delivery drivers found that 63% joined in the last six months, according to Indeed.com. Amazon driver pay averages about $18 an hour, about $50 above the national average. Sharlene Williams makes $15 an hour. Adrian Williams earned $20 an hour.

Jacki Nash makes 2025 an hour. Nash is trying to get a job at UPS. They pay much more. Its maximum price is $38. They got raises every six months. They don't enslave you with all these packages and their union who doesn't want to work for a union and their benefits are excellent. Oops drivers belong to the Teamsters. Meanwhile, union presence at FedEx is minimal because DSPs are contractors. It is difficult for them and their drivers to unionize. It will never bring Amazon closer to the same model as UPS because Amazon would have to set a preferential price of two dollars and $50 per person, without being subject to union labor rules.

Union salaries give them a lot of flexibility to change at any time, and they do. The arm's length relationship also gives Amazon the power to terminate the contract with a DSP or driver at any time. This provides Amazon with some insulation from the shipping industry's inevitable risks, such as failed deliveries, accidents, and even deaths. In 2016, an Amazon driver hit and killed an 84-year-old grandmother in Chicago. Her family filed a lawsuit against Amazon and the contractor, alleging that Amazon placed excessive pressure on drivers to deliver on time. Two more deaths occurred in 2018. The little corners you cut are very dangerous to both you and the community around you.

People are transported on buses in their cars, driving well above the speed limit. People run through stop signs, going through yellow traffic lights. Everyone I knew was buckling their seat belts behind their backs because the time it took to simply buckle the seat belt and unbuckle the seat belt each time was enough time to get behind. A 2019 ProPublica report found that drivers hired by Amazon were involved in more than 60 serious accidents since 2015, at least ten of which were fatal. In court, Amazon has repeatedly said it is not responsible for the actions of its contractors. Delivery is also an inherently dangerous business for any company's drivers.

Of the 5,333 occupational deaths in the U.S. in 2019, more than 1,000 were drivers, according to a report by a labor coalition that analyzed data from the Occupational Safety and Health Administration. Amazon DSP workers suffered serious lost-time injuries at nearly three times the rate of UPS in 2020. Amazon holds mandatory safety meetings for all warehouse employees before each shift, but outsourcing driving to DSPs leaves it takes away Amazon's ability to control these types of daily operations. Instead, it depends on the technology. Amazon tracks safety metrics with its mentor app, which rates drivers on behaviors such as speed, braking and mobile device use.

Uses collective driver ratings to rate a DSP from poor to fantastic,in addition to offering bonuses for high-scoring DSPs. It was more of an emotional drain, like a mental drain, because you were always afraid of, what was my mentor score going to say for the next day? Did they catch me doing something wrong? Was something scanned incorrectly? If you can see right here, is mine for something? And they say driving Thursday was risky. I enabled the entry of cameras. Some trucks have four lenses to observe the road, both sides of the vehicle and the driver. An instructional video from Amazon says it is recording 100% of the time.

I just don't feel like they have to watch me 8-10 hours a day. They say it's for safety, which I can see as if we had an accident, they wanted to see what we were doing inside the van. But it seems to be more about making sure we weren't wrong. They might try to blame us. The camera's AI software can trigger audio alerts if it detects one of 16 different safety issues, such as failing to stop at a stop sign where your seat belt is or paying attention to the road. Distracted driving. If I make a sharp turn or something or try to grab a phone or something, you can hear them say distraction.

Some drivers told us that the cameras provide a feeling of security in certain circumstances, such as around dogs or aggressive customers. The camera facing outward can see the road. I feel like it's a good part of the chamber because if you get to a client's house, you know there's an altercation. If the altercation is on the camera feed, you know, they can go back, check the camera and then take action that way. Shailene Williams was bitten by dogs on her route once when she had to go to urgent care, but she waited until she delivered all of her Amazon packages.

The first leg she bit. She didn't break my skin or anything, but the second time the dog bit me, she definitely broke my skin. I made sure to tell the owner of the house and everything and then I had to go to urgent care after my shift. I wasn't going to make one of my colleagues have to come save me. So yeah, I finished my route and then moved on. In a statement, Amazon told CNBC that 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 percent. %.

We also use sophisticated technology that schedules drivers and, in fact, more than 90% of drivers finish their routes before the scheduled time. So they have been driving at a steady pace. This from 6 a.m. Yes, there are many deliveries. Yes. With Prime Day this month, Amazon is likely to see record sales, and this means a lot of deliveries and pressure on DSPs and their drivers. When new people came and said: Oh, I'm doing so well, we said: Slow down. Because if you deliver 120 packages today, tomorrow you will receive 124 and it never ends. We can work ten hour shifts.

My most intense day was 199 stops, about 320 packages. Sometimes I would have to take all of them. Oversized packages just to find the one I need. Drivers follow routes in the Flex app, which are determined by Amazon algorithms, which also establish package loading and delivery order. Some drivers say the routes have forced them to walk on busy roads carrying arms full of packages and that the GPS has problems. The fight set me back a lot today at the beginning, so I fell behind a little. But it's nothing. I'm still going to finish before my ten-hour shift ends.

I've had days where the GPS was horrible all the time because your GPS doesn't work in places like Vacaville. Locked there. Black people can't come in, they can't come in. The door takes a private road. I've had days where the stops were close together and it was triple digits outside, so my air conditioning could never heat up and I suffered heat stroke and the ambulance had to take me off my route. I am out of here. Some of those things can really be mitigated by just having a route designer saying, if we're going to put these people in the worst crime-ridden neighborhoods, maybe we should let them be there during the day instead of 10 p.m. in November because it's Christmas, and that's when Amazon workers are most likely to be carjacked.

Thank you so much for giving me this during the day because I literally would have thought they were going to kill me tonight. In other cases, drivers have reported not having time to find a bathroom. There were times when I didn't drink anything all day. I didn't eat anything all day because that might make you go to the bathroom. When you have to leave your room to go to the bathroom when you return to your room. That's like a whole 30 or 45 minutes taken away from you because you drive 14 or 8 minutes trying to find a bathroom, and then that stops the entire flow of delivering your packages.

This is why some people urinate in plastic cups and bottles. The one thing about that, though, is that they don't necessarily throw them out of trucks, throw them in the trash, or dump them. They just leave them, which is definitely disgusting. You know, getting into pickup trucks the next day and watching someone pee out of a bottle sitting behind the seat or sitting in the cupholders. Some of my coworkers also discovered that people had urinated in hand sanitizer bottles. So you can only imagine how you would feel if you went to use hand sanitizer and found out it was urine.

That was talk at our stand-up meetings almost every day, like emptying their vans at the end of their shift. Nobody wants to empty your urine bottles. The conversation was never about not peeing in bottles. That was never the conversation. The conversation was to throw them in the trash. Cnbc went to a gas station near an Amazon warehouse in the Bay Area, where the manager says drivers throw bottles of urine after their shifts. He did not want to give his last name or appear on camera to protect his work. I guess the station attendants were constantly complaining about urine bottles in the trash.

It leaked a lot. It smelled very bad. And the dumpster area, it was leaking all over the damn parking lot and all because there was always liquid in the trash cans. Should Amazon do something different? Yes. Maybe they can provide port-a-potties in cities because I think AC Transit also does this in areas where they know it's difficult to use the bathroom. Amazon initially denied that workers urinate in bottles, but later apologized. He admitted that drivers have trouble finding bathrooms, but said it's an industry-wide problem and not specific to Amazon. With Amazon you have a different route every day.

One day you can be in a place where there are a lot of bathrooms and the next day you can be in the middle of nowhere. And that's where I think it differentiates itself from FedEx and UPS, because at least those people can plan their day. There is no way to have control over your day if Amazon is holding my pee for like 2 hours because I'm in the woods and there's nowhere to go. Amazon reserves the right to disable drivers for things like urinating in public and abandoning customer packages in unsecured off-site locations. Williams decided to resign after a particularly bad day last July.

I had like a day from hell and I just lost it. Someone pit bull had accused me and then I was locked up in someone's gated community. It was like 5 minutes. But when you're in this strict time crunch and that's when my coworkers say, Hey, did you hear that? Three drivers got sick and told our boss not to tell anyone. And I was like, me. I quit. A new flexible app feature pings drivers when they are supposed to take breaks and redirects them back to the depot if a driver has been logged in for too many hours.

I wouldn't say it's riskier or worse or more challenging 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 scheduled to be on the roads by 2030. Features include exterior cameras that give the driver a 360-degree view. Reinforced driver's side door. Increased floor space for moving packages in the back of the truck and wraparound taillights for better brake detection. I think Amazon owes it to the contractors and the drivers to make sure the driver is operating safely. And that includes not forcing the driver to make 25 stops in a specific period of time that forces him to take risks behind the wheel.

Adrian Williams suggests having an Amazon employee physically present in each region and in charge of listening to driver feedback and improving routes. There is destiny to my left on the other side of this water. Maybe it's too silly to say put a route designer in every warehouse, but break it down regionally because you're really putting drivers in dangerous situations by having Seattle-only route designers who don't understand the areas they're putting in. drivers and are putting them in really dangerous situations. Drivers need people to talk to to come back and say, "Hey, this didn't work." You took me to a lake, it would be nice and next time I will drive to this lake.

An Amazon spokesperson told CNBC that it is working to address deficiencies in its route system and improve capacity planning, in hopes that drivers will make fewer stops. They have to reduce the time that things happen 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 is a problem. People hit people in crosswalks. They are hurting their own bodies because they are so afraid of losing their jobs because they have to do these routes. So, hire more drivers or just say that maybe things won't be delivered in two days.

Returning an online order has never been easier. It is usually free for the client. Refunds can be instant. You can drop off Amazon items at Kohl's, UPS, or Whole Foods without packaging them or even printing a label. Sometimes Amazon even tells you to keep it, but the truth is, there is no such thing as a free return. Someone has to pay for that and it's up to Amazon or the third party seller. It comes off your bottom line and inevitably causes prices to rise. In 2021, $761 billion worth of merchandise was returned and more than 10% of those returns were fraudulent.

And sellers told us that they simply end up wasting about a third of the returns. From all those returns, almost £6 billion of landfill waste a year and 16 million metric tonnes of carbon dioxide emissions are now generated. That's the equivalent of the waste produced by 3.3 million Americans in one year. Oops predicts a 10% increase in returns compared to last holiday season, meaning more waste and expense for all online retailers. Leading the pack, Amazon has come under increasing criticism for destroying millions of items. Now Amazon says it is working toward a goal of eliminating zero products. He began refurbishing, reselling and now shipping return pallets for auction on the burgeoning liquidation market.

I thought I would receive a return box. Turns out I bought a £423 pallet of eight coffee makers and nine sofa covers. Number three, sofa cover number four. As unwanted holiday gifts flood the market, we wanted to find out what's really happening with e-commerce returns before the rise of online shopping returns became simpler. Buy in a store, return to the store. The item is inspected and usually returned to the shelf. But returning online purchases is much 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, while physical commerce accounts for around seven and a half percent.

Online holiday sales are up more than 11% from last year. Return numbers are breaking records during the holiday shopping season, from November 14 to January 22. UPS said it will handle 60 million returns, up from 55 million last year. An estimated one in four Americans expect to make a return this season and 41% expect to return three or more items before the pandemic hit in 2019. It is estimated that up to 67% of consumers preferred to return to making online purchases in a store before October 20. , 20. 60% preferred shipping items. This year, we expect $120 billion in profits from the holiday season, and that figure was about $100 billion pre-COVID in 2019.

The convenience of e-commerce has normalized the shopping habits that generate the most profits. Wardrobe shopping, where people will order the same thing in three different sizes to see which one suits themIt fits well. And then they go back to the other one without realizing that those other two most of the time don't make it back to that retailer's shelves. Categories like clothing get really high return rates, on the order of tens of percentages. We are often seeing something closer to 3%. Sellers we spoke to, like former Amazonian Rudnick Normal, who now runs an Amazon aggregator with more than 40 third-party brands, average a 1 to 3% return rate.

Amazon wouldn't share overall market return numbers, but they are higher than Amazon anticipated. Here is an article we have Garland. Micah Claussen has been selling party supplies and home decor on Amazon since 2007, now with $10 million in annual sales there. After Christmas, he received a message from Amazon that some of his unsold elf hats, to be specific, would be stored in temporary locations on the site due to higher-than-expected volumes of customer returns. I'm guessing it's on a trailer in their parking lot and they can't easily grab it and ship it back to us. Amazon has since resolved Claussen's storage problem, but also raised his seller fees.

On January 18th. We are making $4 on a sale. It was a four-pack, so by making a dollar per hat, anything I don't sell, I lose $51 just to return it to my warehouse. I won't pay storage for that. It gets to the point where it will probably end up being a discontinued item. Amazon has a lenient holiday return policy, allowing most items purchased since October 1 to be returned through the end of January. Amazon and its sellers like Joe Stephanie are also increasingly allowing customers to keep returns. So if you buy, say, a 999 sticker, if the cost is, say, $3 to make it, that's obviously a lot cheaper than the $5 to $6 it would cost to officially ship the item back to us.

The return process can cost up to 66% of the original price of the items and, as the supply chain crisis increases, the price of transportation increases. And the labor for that return cost is up more than 6% from last holiday season. We estimate that last year it cost us between 75,000 and 100,000 returns. So you're talking about a lot of money. And then there are the bad actors who take advantage of the increasingly no-questions-asked returns process, something American Martinez has seen during her work at Amazon's returns center, where she has worked every holiday season since 2017. She had Beats headphones , someone said.

They are expensive and it looks like the box was not opened. But if you look closely, the factory seal was actually open. And then I opened it. I looked inside the box and inside was just some cheap headphones. It's a shower curtain. Some of the things look and smell like they were actually used and then they went and returned them 30 days later. Oh no, those are definitely. Spent. What is increasingly happening now is that those people are tracked and you will not have the same return privileges in the future. Legitimate or not, each return undertakes a winding and costly journey of reverse logistics that increases carbon emissions at each node.

This is true even when an item purchased on Amazon is returned to a store because there is no place on the cold shelf for that item that was not originally sold by Coles. Therefore, almost all online returns are sent to a warehouse specifically designed to process them. When it arrives at our facility, it comes off the trucks, it goes directly to those conveyors, and we are the first people to take it, open it and see what's inside. Sweetheart Returns centers, like the one Shea Matson works at, are typically older buildings designed larger than advanced logistics facilities, but with lower ceilings because different-sized pallets make it unsafe to stack returns.

They are concentrated in central industrial markets such as Phoenix, Las Vegas, Ohio or Tennessee. It'll show the actual customer notes and everything in there that says, well, why didn't they want this item or couldn't keep it or whatever. You look at the article and find out what it is. Is it the correct article? It's open? Is closed? It's used? Is damaged? Do you know what's happening? Megan says they have about a minute to do an initial inspection of the items. Algorithms then determine what happens next. The computer will ask a series of questions that you must answer about the article.

I could be looking at him. It could be looking for factory seals or damage, spills, leaks, all that kind of stuff. And then depending on what comes up with those questions, the computer will determine where this element should go. If it is a new product, Amazon would allow that product to be resold by listing as new, but it really must be in perfect condition for that to happen. And that's rarer than you might expect, even if the customer hasn't used the product at all. When it can't be sold as new, Amazon offers the seller up to four options for what to do with a return, each with a return-to-seller fee, disposal clearance, or invitation-only, for now grading and resale. from FBA, which we enter later.

With that first return-to-seller option, the return leaves Amazon's warehouse for several more flights on a truck, plane, or cargo ship. Returns to seller for further processing. It could then go back to another Amazon warehouse to be sorted and repackaged, and then to a new customer who could always choose to return the item again. Basically, you are forced to decide whether you want to remove that inventory to your warehouse, which is an expensive process, repackage it yourself, and then ship it back to a warehouse to sell. Which doesn't make sense. I would say 80 90% of the time. Or you can choose to get rid of it.

Disposal is a very common destination for returns from many major online retailers. Amazon says it does not send any items to a landfill, but as a last resort it sends them to energy recovery. This means it is 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, triage, anaerobic digestion, and exhaust gas recovery. dump. Lower value items are destroyed more frequently. You will see fashion items potentially destroyed, actually a good amount if they are not new. And consumer electronics items will see that 70% of them cannot be made available again because the seal is open.

What really surprised me were the items the computer system tells you to destroy. There were things that I felt were still worth it. Like I had a book returned to me, it was a children's book, and the customer said it was torn and folded when it arrived, and it wasn't. And no matter what you put into the system, he said, it destroys the item. And that was a little heartbreaking. You know, I had a couple of video games that suffered the same thing because the factory seal was broken, even though there was nothing wrong with the article saying it would destroy it.

And we see it simply as a cost of doing business on Amazon last year. Stephanie says she made $8 million in sales of non-officially branded apparel items like stickers, flags, and license plate holders on Amazon. We are licensees of some of the biggest brands out there, including the NBA, NHL, 675 colleges, universities, and musical acts like Ozzy Osbourne. How do you think the NBA and NHL would feel if Lakers stickers were sold out? They probably wouldn't like that. For Stephanie's, disposal of merchandise is often the best option. Because you can't tell if someone took a sticker with the main Chicago Bulls logo off the sticker sheet and put it back on.

That's why they are almost always discarded. Sellers say the fee Amazon charges for removal can be a third of the cost of other options. We save extra money by simply doing the disposal option because they don't charge us as much to dispose of the item. Eliminating 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 television station reported that H&M has burned 60 tons of new and unsold clothing since 2013. Richemont, owner of high-end jewelry brands such as Cartier, admitted to destroying watches worth hundreds of millions in two years.

Similar claims have plagued Urban Outfitters. Michael Kors, Victoria's Secret and JC Penney. Yes, it is the easiest thing to do. And also, sometimes certain brands do it because they want to protect their brand and don't want lower value items on the market. One solution is to speed up the reverse logistics process. On average, we see that it can take between 30 and 60 days for a retailer to receive a returns process. He realizes where he has to go. By the time it's back in stock, you've missed the season and it's no longer available or it's on sale by 50%.

Facing criticism for destroying merchandise. Some brands have also found creative ways to recycle returns, turning them into new valuable items. You're turning their bags into yoga mats or some of the shoes they can't sell could end up being shredded and turned into caterpillars. Energy is needed to grind and convert elements into other elements. I think, first of all, if you can sell it in its original form, that's the best scenario for the environment. In fact, Amazon says it's working toward a goal of zero waste for certain electronics, like Amazon devices, phones, and video games. Amazon offers customers the option to send them to a certified recycler or redeem them for Amazon gift cards.

And since 2019, Amazon's FBA donation program allows sellers to automatically offer eligible surplus and returns to charitable groups through a nonprofit network called Good 360. Amazon says more than 67 have been donated so far millions of items. Brands are adopting it. Selling new things, which were once considered simply dirty, is now actually the right thing to do from an environmental point of view. And the younger generations embrace it a lot and buy a lot more used items. But in June, British broadcaster ITV reported that Amazon was destroying millions of items in a UK warehouse, including televisions, laptops, drones and hair dryers.

In response, Amazon added two new options for sellers aimed at re-housing returns rather than disposing of them. First, there is the liquidation. Historically, we've taken those returns, that unsold inventory, those types of things from those online retailers, and sold them by the truckload to resellers. So, your Craigslist or eBay resellers, your flea market sellers. You can recover about 5% of your selling price if your product can be liquidated. And that is an excellent option because then you won't throw it away. And at the end of the day, it will end up in the hands of someone who will hopefully be able to use it.

So all of this 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 by searching for deals online, and clearance palettes have become a popular trend. There were definitely some items on the pallet that were real junk, but then there were other items like a UGG robe or some nice heated winter gear that I like, really? They didn't think it was worth replacing it. This is like a $300 coat. Therefore, 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 unwanted inventory to resellers by the pallet or even.

Complete truck for one of our clients. At one point, I think we auctioned something like 42 truckloads of tiles in one lot from a value standpoint. We have sold many cell phones that have exceeded $1,000,000 in a single auction. It's like a fancy version of dumpster diving, albeit a little more promising, safer, and more legal. The label is still on. 50 dollars. Amazon also partners with Liquidity Services, which allows regular customers like Allen to bid on pallets of returns on clearance or pick up individual items at a new direct-to-consumer warehouse for all overstock that opened in Phenix in October.

All auctions started at $5. It is a single article. We have a lot of furniture, a lot of baby products, baby gates, quite a few electronics and then outdoor activities and fitness, a lot of bicycles. The fourth and final option Amazon is testing is an invitation-only qualification and resale program for certain returns. Amazon rates the item as new, verygood, good or acceptable and then resells it in special sections of your site. There are warehouse offers for used products. Revamped Amazon for refurbished items, Amazon store for Overstock, and a tongue-in-cheek daily deals site called Woot that sells a $10 bag of trash and describes itself as a wild outpost on the fringes of the Amazon community.

This is a really good way to manage returns in a more sustainable way rather than destroying them or throwing them into landfill. It's definitely changed my mind about how much I buy now. When I buy something and I don't like it, I usually try it. Think of something else to do with it, like give it to a family member or resell it to someone you know would like it instead of returning it, returning it all the time. Inside this huge warehouse in Texas. The aisles are not filled with typical merchandise. This would be the antithesis of your traditional e-commerce fulfillment center.

This is a snowflake package where each individual box may have a different set of accessories, may be slightly different in condition quality. Every aisle is filled with clearance returns from Amazon, Target, Sony, Home Depot, and more. These liquidators are coming in and they're buying all this product in bulk. They then package it, size it on pallets and resell it. Therefore, it has become a much larger portion of the industry than we have ever seen before. Liquidation used to exist outside of retail. The liquidation market used to be two people in a truck pulling up to the back of a warehouse with cash in the barrel.

Try to have special offers for special people. It was very unpleasant, very unregulated. We shook people's hands at our trade shows and you'd want to go wash your hands afterwards. He was a small-time buyer and now companies like Liquidity Services have elevated him to a new platform. We went behind the scenes at Liquidity Services to see how the only publicly traded settlement company is helping to change the industry. We have sold road paving equipment, complete gym floors, markers, and mail trucks. We have sold delivery vehicles for public service companies. Retail is in the midst of a transformation driven in part by the pandemic.

Online shopping increased more than 11% this holiday season and return odds on average were three times higher for online purchases. A record $761 billion worth of merchandise was returned last year. Returns that are not sent for clearance are often destroyed, incinerated or sent to landfill. The reason the circular economy exists is to ensure these items find a home and keep them out of the landfill system. Now, amid growing pressure on retailers to perform better and a backlog in the supply chain causing a shortage of new products, there is a boom in the secondary market. Liquidation has not become commonplace.

It's a $644 billion business. And in 2008 it was 309 billion and now it is 644 billion. Therefore, it has more than doubled in the last decade. This warehouse is 130,000 square feet and we will be passing 15 to 20 truckloads of product per day through this building. We take you on an exclusive tour of the wild and booming business of processing and reselling surplus and unwanted goods on the secondary market. With low profit margins and unpredictable quality of second-hand inventory. Liquidation has not always been the business opportunity it is today. A lot of this used to be controlled by the mafia. Honestly, it's a good way to hide money, because no one notices the returns.

Especially 40 years ago, no one looked at returns. But in 2021, more than 16.5 percent of all merchandise sold was returned, more than 56 percent more than the previous year. For online purchases, the average return rate 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 some of the inflation may be due to the fact that this huge amount of returns that have to be sold at a loss detracts from the profitability that a company normally has and has to increase its prices. And then there's the environmental cost.

US returns generate approximately 16 million metric tons of carbon emissions and generate up to £5.8 billion of waste in landfills each year. And retailers like Amazon, which says it does not send any items to landfill, incinerate some returns as a last resort. But sustainable shopping choices are a growing priority for younger shoppers. If you buy an item used, you save 82% of your carbon footprint, boom and bust, and it's actually driven by consumers' desire to do so. Buy those items. That's why it doesn't make sense to throw them away. They should be safe. Put back into circulation. What has become a big problem for one retail sector is a big business for another.

Today, there are thousands of liquidation companies, the largest of which have contracts with Amazon and are targets around the world to receive returns in quantities greater than those sought in the process and sometimes renew them and then auction them as individual items, pallets or trucks to other resellers or to individual consumers, such as a growing segment of YouTube creators who have built a following by unpacking pallets of returns. It's like a fancy version of dumpster diving, but a little more promising, safer, and more legal. A good jacket, yes. It still has tags. 50 dollars. Other resellers have side businesses on sites like eBay or Poshmark.

In some of the auctions I've done, no one else is bidding. And that's when I get really nervous thinking maybe this box isn't that good. And then there have been others where people are just going crazy and it's a total bidding war. So this item here will probably go where and be auctioned at what kind of price. This probably has between 10 and 15000 retail value. And we're going to sell it for between 3 and 5000. Bill Andric founded Liquidity Services in 1999 with $100,000 of his savings. My father and I used to collect used books. Fast forward to the beginning of eBay.

We realized that a marketplace model can create value for virtually any type of used item. In 2000, Liquidity Services made its first major sale, a $200,000 ocean vessel to the state of Georgia. In 2002, liquidity services achieved profitability. In 2006, it was listed on the New York Stock Exchange, where it saw a significant increase during the pandemic. Today, Liquidity Services handles returns for customers like Amazon, as well as unclaimed Postal Service mail items left behind at TSA checkpoints. Think £14 worth of assorted knives and decommissioned military vehicles and other equipment. Seven distribution centers focused on this circular economy challenge for e-commerce retailers with over one million square feet of space.

And now we have eclipsed more than 4.8 million buyers on the platform. When pallets of returns arrive at this Liquidity Services warehouse in Garland, Texas, just outside of Dallas, the first step is to unwrap them, figure out what's inside, and recycle all that packaging. This machine here is a styrofoam identifier and it takes a pallet and a half full of styrofoam and condenses it into this £20 block of melted styrofoam, which they then send to a third party who blows it back up to package foam. Styrofoam again. , cardboard. We probably produce about 200 tons of cardboard a year, recycle 20 tons of Styrofoam a year, and about the same amount in electronics recycling.

We scan an item to enter to make sure of that. They can put it as a manifesto. The items are sorted by workers like Carlotta Barnes, who has been at the Garland warehouse for nine years. We take it out and make sure. That the product is good to sell. When items are ready for resale, they are repackaged. We've had a couple of Christmas trees. We have some decorative pillows, some furniture, maybe a desk. How much does something like this cost? I'm probably going to auction for that. So, you'll start with $100 at settlement. And that the market is really going to determine what price it will sell at.

They are stacked in the aisles waiting their turn to be auctioned in one of the liquidity services markets. There is a sale where pallets of returns and some individual items are auctioned off to the highest bidder. Secondly, usually for direct sales of individual items and offers for those unclaimed packages, TSA items or obsolete military equipment. While Liquidity Services is one of the largest liquidators, there are thousands of companies in this booming space. One is Good by Gear, which sells gently used baby and children's items as an alternative to Facebook or Craigslist marketplace. This particular space really warns.

Trusted third party. Because. You know, those are things your baby goes to sleep with. In or sit and. Eat it. Kristen Langfield got off to a good start with the team after her youngest son, now six, outgrew a particularly bulky item. It

costs

$150 to buy it new. And it was incredible for him. Few months she used it. And then after that zero use, you know, and this big eyesore in the middle of your room. Another big player in this space is B stock, which runs brand clearance marketplaces for big clients like Amazon, Walmart, Home Depot and Costco.

Last year we sold around 150 million individual items. Howard Rosenberg founded B stock after six years at eBay, where he saw the benefits of specializing in clearance for others at scale. Therefore, companies typically don't want to spend a lot of time and effort focusing on that small slice of the pie. They want to focus on the 99% slice of the pie. Cleared returns, re-entry into the circular economy through individual sales on Craigslist or eBay. Pawn shops, flea markets and second-hand stores. Stores wanting to reuse, wanting to have a lower impact on the environment. They're getting a good deal too, right?

As if they were teaching us not to pay full price. And if you can do both at the same time and get a good deal, I think that's what all the younger generations do. But many of the returns cannot be resold. You can see it still has plastic from the original manufacturer. So we know this is a very new unit, it has never been used, but it was damaged during shipping. And what we can do is replace this crystal with a donor crystal from a non-functioning unit. The renewal department is an important part of the Liquidity Services business and there are a lot of TVs here.

How many do you do each day, would you say? We make around 100 TVs a day and they sell for 60-70% of the retail price. My little daughter has come and, you know, she is amazed by the machines and has asked her a couple of questions. Stephen Boykins moved with three of his four children to manage the Garland warehouse. He has been with the company for six years. I try to explain it to her as far as she understands. And it's like, hey, when you have kids, this will directly affect you and your kids. This small part of the operation that no one thinks about will have a huge effect over the next 50 to 60 years.

Generation Z shoppers, like the Boykins kids, have fueled the search for more sustainable retail options, driving the overall popularity of secondhand shopping across generations. In a survey of 1,000 consumers, 81% of baby boomers participated in reselling in 2021, up from just 39% in 2019. Refurbished electronics have also gained popularity due to a shortage of new products. When we receive our reconditioned product, we get very good recoveries. Probably between 80 and 100% recoveries, depending on market seasonality. But right now, the market is very strong due to the shortage of supply on the front side. Refurbished consumer electronics, such as noise-canceling headphones or HP laptops, are in high demand, but so are high-end refurbished items, such as machines used to make microchips.

We have seen Fortune 500 companies access use equipment in our market because the shipping time is shorter in the circular economy than originating a newly manufactured product and putting it on a ship, transporting it across the ocean to a port that is probably delayed for 6 to 8 months. And as the secondary market grows, many retailers now sell refurbished items directly. Amazon has entire sections of its site dedicated to this. There are warehouse offers for used products. Amazon renewed for refurbished items, Amazon outletfor Overstock and a tongue-in-cheek daily deals site called Woot that sells a $10 bag of trash. Best Buy now has an online outlet where it sells open-box TVs and appliances, and HP has an outlet with refurbished computers and more.

We will remanufacture it and market it with an HPE warranty, or sell it as-is to a certified contract partner who will then remanufacture it themselves and sell it with their third-party warranty or partially harvest it and sell the parts. The liquidation boom has generated another trend of hundreds of negotiations. Container stores are popping up across the country with names like Dirt Cheap and Treasure Hunt Liquidators, where dozens of customers line up, sometimes even camping out overnight to get the first pick, after weekly deliveries of clearance pallets, rummaging through containers and return containers. looking for fashion items they can sell for a profit.

Stores like Big Lots, Bargain Hunt, Ollie's Bargain Outlet, etc., all these stores and then eBay and even Amazon have gotten into it. Then they are selling the profits to consumers because again, 90% of the time, there is 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 at online auctions that typically start at $5. This is especially useful for liquidating bulky items like kayaks, but something like this will be. Be very expensive to ship now because.

Is so big. That's the beauty of our network of logistics centers. We can retrieve these items directly from consumers and then have consumers bid online and pick them up at our warehouse. Ingrid plans to open a second supply store in Dallas later this year. The more people discover that there is nothing inherently wrong with this product, the more I trust the market that sold it to me. I am able to save a significant amount of dollars which really benefits all parties.