Where Online Returns Really End Up And What Amazon Is Doing About It

Executive Summary

E-commerce returns are costly because items may travel through several facilities, require inspection and repackaging, and lose resale value while in transit. Convenient return policies can support the customer experience, but the costs fall on retailers or third-party sellers—and may contribute to higher prices, waste, and emissions.

Amazon is trying to reduce disposal by expanding donation, liquidation, refurbishment, and resale options. The central operational challenge is finding a viable destination for each returned item quickly enough to preserve its value.

Key Metrics

• $761 billion of merchandise was returned in 2021; more than 10% of returns were reported as fraudulent.
• Online purchases are returned at roughly three times the rate of in-store purchases. Optoro cited return rates of about 25% for e-commerce versus 7.5% for brick-and-mortar.
• According to figures cited in the video, returns generate nearly 6 billion pounds of landfill waste and 16 million metric tons of CO₂ emissions annually.
• UPS forecast 60 million returns during the November 14–January 22 holiday shipping period, compared with 55 million the previous year. It also predicted a 10% year-over-year increase in holiday returns.
• One in four Americans expected to make a holiday return, and 41% expected to return three or more items.
• Holiday-season returns were projected at $120 billion, compared with about $100 billion in 2019.
• Processing a return can cost as much as 66% of an item’s original price. Costs were up more than 6% from the previous holiday season amid higher transportation and labor expenses.
• A returned item can take 30–60 days to be received and processed—long enough to miss a selling season or require a markdown.
• One seller cited $75,000–$100,000 in return costs in the previous year. Another said it cost $1.50 to retrieve an unsold item, despite earning only $1 per hat on the original sale.
• Liquidation may recover about 5% of the original sale price. In one example, a pallet said to contain nearly $10,000 worth of goods sold for $575.
• Amazon said its FBA Donations program had donated more than 67 million items since 2019.

Operational Process and Options

A return is routed to a specialized returns center, inspected, and evaluated by a worker and an algorithm. The system checks factors such as whether the product is correct, sealed, used, damaged, or leaking, then directs it to a disposition.

Returns centers can be harder to operate than forward-fulfillment facilities. Varied pallet sizes limit safe stacking, and workers may have only about a minute for an initial inspection.

If a product is pristine, Amazon may resell it as new. Otherwise, sellers may face several options:

• Return to seller: The item may travel through several more legs before being reprocessed and sent back to Amazon. Sellers said this often does not make economic sense.
• Dispose: In some cases, this is a lower-cost option for sellers, but it may mean the item is destroyed or sent for energy recovery.
• Liquidate: Returned or overstock goods are sold in bulk to resellers, often by pallet or truckload.
• Grade and resell: An invitation-only Amazon program assigns a condition grade—such as like new, very good, good, or acceptable—and resells eligible items.

Business Tactics and Lessons

• Choose a disposition based on unit economics. For a low-cost sticker, one seller compared a manufacturing cost of roughly $3 with $5–$6 to retrieve the item, making a refund without a return more economical.
• Treat returns as a product and pricing issue, not just a service issue. Free returns and permissive policies benefit customers, but their costs affect seller margins and may be passed on through higher prices.
• Speed up inspection and routing. Long processing times reduce resale value, cause missed seasons, and increase markdown risk. Faster decisions can help preserve the value of returned inventory.
• Use alternative recovery channels before disposal. Amazon has expanded liquidation, resale, refurbishment, trade-ins, and charitable donations. Other retailers use auction marketplaces to sell returns and overstock to resellers.
• Match the recovery route to the item and brand. Licensed or branded goods may be unsuitable for liquidation if resale could weaken brand control. One seller said branded stickers were often disposed of because it was difficult to verify whether they had been used.
• Account for fraud and abuse when designing return policies. Examples included substituted headphones and visibly used goods returned as new. Amazon worker America Martinez said customers who abuse returns may lose return privileges.
• Consider customer behavior when designing policies. “Wardrobing”—ordering multiple sizes and returning the extras—can create substantial handling costs and prevent returned goods from going back onto shelves.
• Use resale and reuse to support sustainability and customer engagement. Amazon’s Warehouse Deals, Amazon Renewed, Amazon Outlet, and Woot! provide channels for used, refurbished, and overstock items. Some companies also upcycle goods, though the video notes that selling an item in its original form is generally preferable to processing it into something new.

Examples from Sellers and the Market

• Micah Clausen, who said his Amazon business generated $10 million in annual sales, described seasonal storage pressure and a fee increase that changed the economics of retrieving unsold inventory.
• Joe Stefani, whose business generated $8 million in sales of branded non-apparel goods, said disposal could be preferable when brand rules or uncertainty about an item’s condition made resale unsuitable.
• A liquidation-pallet buyer found both unusable goods and items that appeared valuable enough to resell, illustrating the inconsistent condition and recovery potential of bulk returns.
• The video also cited criticism of retailers that destroy unsold goods to protect brand value, underscoring that disposal is not unique to Amazon.

Presenters and Sources

Named interviewees and contributors: Tobin Moore (Optoro), Micah Clausen (Iconikal), Raunak Nirmal, Joe Stefani, America Martinez, Shay Machen, and Hope Allen.

Organizations and sources cited or featured: Amazon, UPS, Optoro, the National Retail Federation, the U.S. Environmental Protection Agency, Good360, B-Stock, Liquidity Services, Liquidation.com, and ITV.

Additional retailers discussed: Kohl’s, Whole Foods, Target, Walmart, Costco, Best Buy, Macy’s, Wayfair, Burberry, H&M, Richemont, Urban Outfitters, Michael Kors, Victoria’s Secret, and J.C. Penney.