How Amazon’s Broken Returns Process Is Driving Sellers To Leave Amazon

0:01 This facility is 70,000 square feet. So it's all b aby gear. Inside Good Buy Gear's sprawling Pennsylvania warehouse... These are accessories for strollers, humidifiers, t hese are playard sheets. These 60,000 boxes aren't filled with your typical new baby products. Nearly all of them are returns. Nine years ago, all of this was going into the landfill. They're rigorously inspected before being resold or tossed. That looks like a poop stain. I'm not exactly sure what that is, so. Kristin Langanfeld has spent nine years building a business out of helping others figure out the messy, expensive chaos of returns. She plans to get 200,000 items to a second home this year. So when we're quality checking the items, it walks through 50 different checks,

0:47 in some cases. It's a problem the world's biggest online retailer can't seem to figure out. Amazon handles returns for the vast majority of its sellers. But when Amazon gets it wrong, the seller suffers the consequences. So, there was actually two diapers that were sent out that were poopy. Rachelle Barron sells reusable swim diapers. When Amazon failed to catch dried poop in a returned diaper, Amazon sent it as new to one of Barron's customers. The bad review nearly took out her business. We were at about a million in sales. And then after the review happened, we tanked. Returns fraud, like returning a soiled diaper, is on the rise amidst the ease and anonymity of online shopping. Retailers say nearly 14% of returns were fraudulent in

1:33 2024, up from just 5% in 2018. I really don't think that consumers understand how their return habits affect small businesses and families like mine. Then there's the immense cost. Between new return fees on Amazon, multi-step reverse shipping, and the labor for proper inspections, it's often easier for sellers to just tell customers to keep it or for it to end up in a landfill. Returns generated an estimated 29 million metric tons of carbon emissions, and 9.8 billion pounds of returns ended up in landfills in 2024, according to reverse logistics software provider Optoro. But now some small changes on Amazon may be bringing gradual relief. About 16 months ago, return rates on Amazon has

2:19 been getting a lot better for us. Three years after our last look into the mess of returns, we sat down with seven Amazon sellers to find out what's changed as they face new fees, rising fraud, and shrinking margins amidst ever changing tariffs. Returns have always been a part of the shopping experience, and they've always come at great expense to retailers. But as online shopping took off, so too has the cost of returns. A lot of the times, the return shipping, it costs more than the product itself. Mike Jelliff and his wife Joylynn have been selling professional music gear and stands for more than 20

3:05 years out of their warehouse in Tyler, Texas. Returns have always had a chance for abuse in the past, but I think now when you go online, it's much easier to do it anonymously. Nearly 17% of sales resulted in returns in 2024, more than double the rate of five years ago, costing retailers some $890 billion. And it costs 30% of the price of an item to process it as a return. We're going to end up selling at least 2 to 3 more products just to break even on that one return. Nearly 70% of the Jelliffs' $2.8 million of annual sales happen on Amazon, where their return rate is more than three times the average from the other eight marketplaces where they sell: like eBay and Walmart. So, what Amazon does is just processes a return label.

3:52 "Oh, you can't figure it out? Here's a return label." After Amazon initiates a return, the Jelliffs have it sent to their warehouse and they process it internally. But most sellers, some 86%, use Amazon for this through a program called Fulfilled by Amazon. Like Lorie Corlett, who sees 1% returns of her Hot Wheels collector cases on Walmart and nearly 4% on Amazon. If I could leave Amazon, I would, b ut we need to be there for the customer base that wants to shop on Amazon. About 40% of our business is on Amazon, but I would like to shrink that business to as small a margin as possible. Five years ago, Lisa Myers invented a special chiller to help breastfeeding moms on the go. It takes some practice to use right, s o customers who buy directly on her website

4:38 often reach out with questions. But direct communication between sellers and buyers on Amazon isn't so easy. So we have less than 1% returns when we are interacting with the customer, and yet we have between 6% and 8% returns with Amazon. Cathryn Lavery sells $3 million a year worth of her Best Self journals and conversation game decks. Our returns on the last year is about 4.5% on Amazon, but compared to our Shopify store, it's like, you know, less than 1%. If I could choose, I would definitely be off of Amazon, b ut unfortunately that's where customers are. To help cover the high cost of returns on Amazon, many sellers are raising prices. We did increase our prices 10% solely based on the

5:24 fraud. Some 66% of retailers also started charging customers for some categories of returns last year. Amazon started charging customers a $1 fee in 2023 for some returns handled by UPS. Amazon also added a steep new returns fee for FBA sellers last year, a sort of penalty for some categories over certain return rate thresholds. In addition to reverse shipping and processing fees, products with higher return rates will get slapped with an additional fee based on weight, ranging from $1.65 to $160 plus. Increasing fees in general hurts the sellers tremendously, and it eventually just passes off the cost to the consumer. One survey by e-commerce analysis company SmartScout found that 65% of sellers said they raised prices in

6:12 2024 directly because of Amazon fee changes. But there may be a silver lining. In September, a couple of months after Amazon added the new returns threshold fee, o ne e-commerce group saw return rates for U.S. Amazon sellers drop nearly 5%. It's forcing the seller to have higher quality listings and higher quality products. So Amazon probably had pretty good intent in doing this, b ut of course, they're also looking to make more money. Amazon's also added some new ways sellers can customize returns in recent years, which may contribute to the dip. Jelliff says his return rate spiked in 2021 because Amazon began auto generating return shipping labels instead of sending refund requests to him for manual approval. Then in 2023, for items above $100, Amazon let him opt out of auto-generated return labels

6:58 again. His return rate's been dropping since. Now, they're down to at least a much better marginal level, a bout 3% to 3.5%. Also around the time his return rate started dropping, Jelliff says Amazon added some tools for fighting returns fraud cases: allowing multiple appeals and requiring photos. This was a win for Jelliff, who installed a system of 40 cameras to track every outgoing item, i ncoming return, and unboxing. It is helping just keeping people honest and keeping our business afloat, you know, not losing inventory to falsehoods. Last year, Amazon added extra options for FBA sellers too, such as choosing not to have any returns resold, or to automatically tell

7:45 customers to keep the item. If someone's used a product, w e don't really want it back. It's not even worth the shipping. And to help cut back on returns happening in the first place, Amazon started adding a warning label to "frequently returned items." But should Amazon do more to warn sellers about fraudulent customers, too? We're running at just over 1% net profit on Amazon t otally due to fraud and return abuse. It's really Amazon that's accountable at the end of the day. People would stop doing it if Amazon held them accountable. Amazon told us it has no tolerance for fraudulent returns. It takes action against some scammers, from denying refunds to requiring customer identity verification. Return fraud takes many forms. Both Jelliff and Langenfeld set aside a "hall of shame"

8:33 to show us the most ridiculous returns, like catfishing... I don't know if you can see this...i t's a brick. So, people try to fraud the system by putting some weight in a box. This is one that was returned yesterday and we think it's a car part. Or the box is empty. You can see the label here shows 10 pounds. It's completely empty. Then there's wardrobing: u sing an item for a specific event, then returning it. People sell Halloween costumes, which is probably the worst thing to sell on Amazon, and they get, "Oh, I bought it by mistake," the next day after it's been opened and used. A whopping 64% of shoppers in 2024 admitted to wardrob ing at least once a month: t hat's nearly three times more than in 2023. A nd, 75% said they embellished or exaggerated

9:21 the reason for making a return. Optoro also told CNBC that wardrobing is expected to go up as sellers raise prices because of tariffs, but most commonly, items returned as new are used or damaged. That sound is not good. So, I'm going to put gloves on because some of these are kind of gross. Used baby items can be especially problematic. This is a bassinet h ere. Y ou can see there's some throw up on here. This is a car seat that's broken. This is a Ceres Chill . There's actually milk in there, i t's not even dry, i t's still milk. We wouldn't want to sell that. But Ceres Chill inventor Myers says while she was using FBA in 2023, Amazon did resell one with

10:07 someone else's rotten breast milk inside. For her to say that she will never forget that smell and to have something so, a nd I don't mean to be dramatic, but dangerous, y ou know? Somebody else's bodily fluids in your kitchen, rotting in something that you had intended to use for your child is unacceptable. For returns like this, disposal makes sense. That's the moment I broke down crying and just sat down and thought, I have no idea how this could have happened. We did, after that point, not engage in any more FBA sales. After that customer left a bad review, Myers started outsourcing all her returns to GoodBuy

10:53 Gear, leaving behind the benefits of FBA like the Prime badge. It hurts our business to not participate in Fulfilled by Amazon. It's just, we're not willing to put profit over the safety and, frankly, mental health of our customers. One bad experience like that could ruin a brand. Langenfeld started GoodBuy Gear when she was a new mom, struggling to find a good-quality, used jogging stroller. When she first visited a returns warehouse five years ago... Taped on the floor were signs that said, "Incinerate. D estroy." And you see pallets of perfectly good strollers and car seats and baby gear that was on there. Because she specializes only in baby gear, L angenfeld knows what to look for.

11:40 We've spent the last nine years building out a database that has all of the products and the variations, the common issues, the recalls. For some of these, there's 40 points that we inspect on the item itself, and it's really complicated. Each item is handled by four employees and inspected for about 15 minutes. But the resource intensive process is paying off. She says 33 new sellers signed up in 2024: three times more than the previous year. And with business growing 50% year over year, she's upgrading to a bigger warehouse in Columbus, Ohio. I think today what's happened with the tariffs and, you know, that's really a forcing function to say that the brands are having to figure out how they can make more margin on items and returns being double digit s ometimes,

12:26 they have to figure out ways to recoup that. GoodBuy G ear sends details and photos of all inspected returns to the brand so they can choose how to handle the return f raudsters. ...To make sure that they don't keep doing that to more retailers. But instead of outsourcing returns to a specialist like GoodBuy Gear, the vast majority of Amazon sellers rely on FBA, where the sheer volume of packages precludes Amazon from the same level of customization. Amazon has millions of different products that are being sold and what to look for on each product to judge it being sellable or unsellable, t hey're actually not qualified to make some of those decisions. Because it's such a large operation,

13:13 t hings are missed. I think they're probably missed on the margins, but these stories are very impactful because it is such a reckoning for the brand. There's just very little control you have for your returned goods, and what happens, happens. Amazon has faced criticism for destroying millions of pounds of unused products. In 2022, Amazon told us it was "working towards a goal of zero product disposal," but wouldn't give a timeline. Three years later, it's still in the works, with Amazon telling us in a statement, "The vast majority of returns are resold as new or used, returned to selling partners, liquidated or donated." In 2020, Amazon did add two new options for sellers to re-home returns: "Grade and Resell" allows all U.S. FBA sellers to have Amazon rate the return and

13:59 mark it as used before reselling it. "FBA Liquidation" allows sellers to recoup some losses by offloading pallets of goods for resale on the secondary market through liquidation partners like Liquidity Services, where we got a tour in 2022. The reason the circular economy exists is to make sure these items find a home and keep it out of the landfill system. There's also an FBA Donations program that's been around since 2019, allowing sellers to automatically offer eligible overstock and returns to charity groups through a nonprofit called Good360. Amazon says these seller programs give a second life to more than 300 million items a year. In 2022, Amazon also told us, "No items are sent to landfill." There are a number of items that we can't recover or are

14:45 not recyclable. And for reasons such as legal reasons or hygienic reasons or even product damage. And in those cases, we do pursue energy recovery for those items. Energy recovery means you burn something to produce heat, to produce energy, and you rationalize disposal of goods as a conversion from one form of matter to another. To the degree that doing that, I don't think they fully reveal. It is our absolute last resort, both economically as well as environmentally. Amazon is far from alone in this practice. In 2022, we visited an energy recovery facility where major corporate clients burned their waste to avoid the landfill. The steam, harnessed by one facility can power up to

15:32 65,000 homes for a year. For shoppers wanting to keep returns from incineration or landfills, Amazon has options. Amazon Resale has used and open-box goods. Amazon Renewed sells refurbished items. Amazon Outlet sells overstock, and tongue-in-cheek daily deal site Woot!, bought by Amazon for $110 million in 2010, sells things like scratched and dented items...and a "Bag o' Crap." Customers can also trade in certain electronics like Amazon devices, phones, and tablets for Amazon gift cards, or send them to Amazon's certified recycler. I hope the change that we're able to make as a country is that we stop making crap, like less of a disposable society where we just buy things and throw them out. We should make high quality products that are meant for

16:20 resale.