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How Amazon plans to fix its massive returns problem

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Amazon is handling a rapidly growing number of returns that are causing a massive problem for the e-commerce giant and the planet.

A National Retail Federation survey found a record $761 billion of merchandise was returned to retailers in 2021. That amount surpasses what the U.S. spent on national defense in 2021, which was $741 billion. 

Amazon wouldn’t share its overall returns numbers, but in 2021, the National Retail Federation estimates 16.6% of all merchandise sold during the holiday season was returned, up more than 56% from the year before. For online purchases, the average rate of return was even higher, at nearly 21%, up from 18% in 2020. With $469 billion of net sales revenue last year, Amazon’s returns numbers are likely staggering. 

U.S. returns generate 16 million metric tons of carbon emissions during their complicated reverse journey and up to 5.8 billion pounds of landfill waste each year, according to returns solution provider Optoro

“We’re talking about billions, billions, and billions of [dollars of] waste that’s a byproduct of consumerism run amok,” said Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada. 

“The reverse logistics are always going to be nasty because the merchandise, in most cases, cannot be resold as it was originally,” Cohen said. “The most expedient pathway is into a dumpster, into a landfill.”

Amazon has told CNBC it sends no items to landfills but relies on “energy recovery” as a last resort.

“Energy recovery means you burn something to produce heat, to produce energy. And you rationalize the disposal of goods as a conversion from one form of matter to another,” Cohen said. “To the degree they’re doing that I don’t think they fully reveal.”

Amazon has said it is “working towards a goal of zero product disposal,” although it wouldn’t set a target date for reaching that goal.

“We encourage a second life on all of the products that we receive back,” said Cherris Armour, Amazon’s head of North American returns in an exclusive interview with CNBC.

“And that comes in the form of selling the majority of the items that we do receive. They are resold as new and used, or they go back to the seller or supplier, or we donate them,” Armour said.

Energy recovery, Armour added, is only for “items that we can’t recover or are not recyclable” due to legal or hygienic reasons or product damage.

Armour first joined Amazon 12 years ago, starting as a night shift operations manager at a fulfillment center in Indianapolis. She said the goal of zero product disposal was something they talked about at Amazon for many years. 

Cherris Armour, Amazon’s head of North American reverse logistics, poses with two other Amazon employees at a fulfillment center in Phoenix, Arizona, in November 2021.

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Easy returns are good business, but then what?

Researchers have found that consumers love easy returns.

An often-cited 2018 survey of 1,300 online shoppers found 96% would come back to a retailer if they had a good returns experience, and 69% were deterred from buying if they knew they’d have to pay for return shipping. In 2019, Amazon expanded free, easy returns to millions of items.

“Amazon has really been a game changer in the reverse logistics world because of how easy their returns are,” said Zac Rogers, who ran returns for an Amazon subsidiary called Quidsi from 2010 to 2012 before he became an assistant professor of supply chain management at Colorado State University.

“So now you have your more traditional retailers like Walmart or Target sort of implementing similar policies because that’s a really big piece of how you compete on the retail side of it,” he said. “It creates loyalty to the brand, makes you more likely to sign up for [Amazon’s] Prime, and Prime is really the thing that drives the flywheel of that company.”

Amazon now allows returns at 18,000 locations, including the option to drop off items without a box or label at Kohl’s, UPS and some Whole Foods stores. There’s a Try Before You Buy program for Prime members designed to make returns for clothes even easier, with return labels already included in the box. On the extreme end of easy returns, Amazon is increasingly allowing customers to keep some “returned” items while still refunding them.

“If I tell you to keep the product, instead of counting the cost and the carbon effect of taking it back, I look better as a company, don’t I?” said Tony Sciarrotta, executive director of the Reverse Logistics Association. “Let’s let the people keep it and then it doesn’t count against us. But now you, as a consumer, what do I do with this thing, right?”

Amazon now has to solve the problem of what to do with returns on the back end.

Amazon spent nearly $152 billion on logistics in 2021 — nearly a third of all net sales. That’s up from $119 billion in 2020. Returns factor into these costs, so anything Amazon can do to lower those costs will help the company’s bottom line.

“They’re going to do it for their own self-interests, although they’ll couch it in the name of saving the planet,” Cohen said. “But at the end of the day, their action is going to be based upon the economics of what we’re seeing.”

To that end, in 2019 Amazon launched a donation program that allows U.S. sellers to automatically donate excess and returned goods to a network of 100,000 local charities through a partnership with nonprofit network Good360. The organization works with about 400 companies, including giants such as Walmart, CVS and Nike, but says Amazon is its biggest corporate donor.

Good360 says it coordinates with local charities for direct pickups at more than 230 Amazon facilities, which helps Amazon save on transportation costs as gas prices hit record highs. The nonprofits pay Good360 a fee to help cover freight costs.

They also agree to certain rules before getting access to Amazon donations.

“They’re not going to be reselling those items, putting them on online auction sites, taking them to local flea markets or that sort of thing. So protecting that brand integrity of our donors is really central to what Good360 does,” said Shari Rudolph, Good360’s chief development officer and CMO.

There are also potential tax write-offs that can come with donating to a nonprofit.

“There are some programs that are available,” Rudolph said. “I don’t have any visibility into what the Amazon team is taking advantage of, if anything.”

Good360 program operations manager Regina Freeman handles Amazon returns in Baltimore, Maryland, in September 2020

Jim Halling Photography

Secondary market

There’s also a boom in the secondary market that’s making it easier to make money on secondhand items. Amid mounting pressure from younger shoppers who want sustainable shopping options, and a supply chain backlog causing a shortage of new goods, Colorado State’s Rogers calculated the size of the 2021 secondary market at $688 billion, up from $649 billion in 2020.

As secondhand items became a potential moneymaker, Amazon launched two new programs to rehome returns in 2020. It now gives sellers the option of liquidating returns, sending them to major third-party liquidators such as Liquidity Services to auction them off on the secondary market.

Also in 2020, Amazon started offering select sellers a Grade and Resell option for returns. With this option, Amazon evaluates the returned item and gives it a grade — Like New, Very Good, Good or Acceptable — then resells it on special sections of its site. There’s 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.” Amazon even offers customers gift cards to trade in their used Amazon devices, which it can try to refurbish and resell.

“We expect that these programs will help to give a second life to more than 300 million units a year,” Amazon’s Armour said.

That’s just smart business, explained Rogers, the former Quidsi employee.

“Let’s assume a 20% return rate, that’s $93.8 billion of returns coming in. If instead of getting pennies on the dollar from a salvage dealer, you could get maybe 30 cents on the dollar from strategic targeted disposition, that bumps us up to $28 billion,” said Rogers.

“At $28 billion, having Woot or Amazon Outlet, now that makes a lot more sense because we’re really starting to get a return for our investment,” he said. “Before, when we were at a small scale, it’s like, ‘This is trash, get rid of it.’ Now, when we get bigger, they’re scaling to the point where monetizing those returns, it’d actually be irresponsible not to.”

But reverse logistics experts say the best way to reduce waste, and cut the expense of returns, is to prevent them from happening in the first place and then to create disincentives for returning goods.

“The industry at large would bow down to Amazon in a heartbeat if Amazon were to start to charge for returns because it would give them air cover to do the same,” Cohen said.



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Fiji fires police commissioner and end security deal with China

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Police operate a security check point in the Fijian capital of Suva in December following general elections. The Pacific island nation has played an important regional role amid competition between China on the one side and Australia, New Zealand and the United States on the other.

Saeed Khan | Afp | Getty Images

Fiji’s president on Friday suspended the commissioner of police following a general election saw the first change in government in the Pacific island nation in 16 years, after the military earlier warned against “sweeping changes.”

President Ratu Wiliame Katonivere said Commissioner of Police Sitiveni Qiliho had been suspended on the advice of the Constitutional Offices Commission, “pending investigation and referral to and appointment of, a tribunal.”

The Supervisor of Elections Mohammed Saneem was also suspended by the commission, the statement said.

Qiliho declined to comment to local media because he said he will face a tribunal over his conduct. He was seen as being close to former prime minister Frank Bainimarama, who led Fiji for 16 years before a coalition of parties narrowly won December’s election and installed Sitiveni Rabuka as leader of the strategically important Pacific nation.

The day before a coalition agreement was struck, Qiliho and Bainimarama called on the military to maintain law and order because they said the hung election result had sparked ethnic tensions, a claim disputed by the coalition parties.

The Pacific island nation, which has a history of military coups, has been pivotal to the region’s response to competition between China and the United States, and struck a deal with Australia in October for greater defence cooperation.

No more China policing deal

On Thursday, Fiji Times reported that Rabuka said his government would end a police training and exchange agreement with China.

“Our system of democracy and justice systems are different so we will go back to those that have similar systems with us,” the prime minister was quoted as saying, referring to Australia and New Zealand.

The prime minister’s office did not immediately respond to a request for comment.

Republic of Fiji Military Forces Commander Major General Jone Kalouniwai earlier this month warned Rabuka’s government against making “sweeping changes,” and has insisted it abide by a 2013 constitution which gives the military a key role.



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Inventory glut and underused factories

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Intel CEO Pat Gelsinger, with U.S. President Joe Biden (not pictured), announces the tech firm’s plan to build a $20 billion plant in Ohio, from the South Court Auditorium on the White House campus in Washington, January 21, 2022.

Jonathan Ernst | Reuters

Intel’s December earnings showed significant declines in the company’s sales, profit, gross margin, and outlook, both for the quarter and the full year.

Investors hated it, sending the stock over 9% lower in extended trading, despite the fact that Intel did not cut its dividend.

The earnings report, which was the eighth under CEO Pat Gelsinger’s leadership, shows a legendary technology company struggling with many factors outside of its control, including a deeply slumping PC market. It also highlights some of Intel’s current issues with weak demand for its current products and inefficient internal performance, and underscores how precarious the company’s financial health has become.

“Clearly, the financials aren’t what we would hoped,” Gelsinger told analysts.

In short: Intel had a difficult 2022, and 2023 is shaping up to be tough as well.

Here are some of the most concerning bits from Intel’s earnings report and analyst call:

Weak and uncertain guidance

Intel didn’t give full-year guidance for 2023, citing economic uncertainty.

But the data points for the current quarter suggest tough times. Intel guided for about $11 billion in sales in the March quarter, which would be a 40% year-over-year decline. Gross margin will be 34.1%, a huge decrease from the 55.2% in the same quarter in 2021, Gelsinger’s first at the helm.

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But the biggest issue for investors is that Intel guided to a 15 cent non-GAAP loss per share, a big decline for a company that a year ago was reporting $1.13 in profit per share. It would be the first loss per share since last summer, which was the first loss for the company in decades.

An inventory glut

Dropoff in gross margin

Underpinning all of this is that Intel’s gross margin continues to decline, hurting the company’s profitability. One issue is “factory load,” or how efficiently factories run around the clock. Intel said that its gross margin would be hit by 400 basis points, or 4 percentage points, because of factories running under load because of soft demand.

Ultimately, Intel forecasts a 34.1% gross margin in the current quarter — a far cry from the 51% to 53% goal the company set at last year’s investor day. The company says it’s working on it, and the margin could get back to Intel’s goal “in the medium-term” if demand recovers.

“We have a number of initiatives under way to improve gross margins and we’re well under way. When you look at the $3 billion reduction [in costs] that we talked about for 2023, 1 billion of that is in cost of sales and we’re well on our way to getting that billion dollars,” Gelsinger said.

The not-so-bad news: Dividend and self-driving

Long-term investors have always closely watched how the company balances the near-term need to placate shareholders with the massive capital spending needed to stay competitive in the semiconductor manufacturing business.

If Intel is cutting costs and still needing to invest in chip factories to power its turnaround, analysts say it may want to reconsider its dividend. Intel spent $6 billion on dividends in 2022, but did not cut its dividend on Thursday.

Meanwhile, the company said it wants to cut $3 billion in costs for 2023 and analysts believe it wants to spend around $20 billion in capital expenditures to build out its factories.

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Gelsinger was asked about this dynamic on Thursday.

“I’d just say the board, management, we take a very disciplined approach to the capital allocation strategy and we’re going to remain committed to being very prudent around how we allocate capital for the owners and we are committed to maintaining a competitive dividend,” Gelsinger replied.

There was at least one bright spot for Intel on Thursday.

Mobileye, its self-driving subsidiary that went public during the December quarter, reported earlier in the day, showing adjusted earnings per share of 27 cents and revenue growth of 59%, to $656 million. It also forecast strong 2023 revenue of between $2.19 billion and $2.28 billion. Shares rose nearly 6% during regular trading hours Thursday.



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China’s reopening will boost these retail names, Wells Fargo says

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