Comment by jasode | Hacker News Reader

Comment by jasode | Hacker News Reader

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>If Amazon is selling a shirt for $50, then they are probably acquiring it for $25-30. Believe me, they don't want to throw away that $25-30.

The key you're missing is Amazon didn't have to spend that ~$25 in the first place.

I'm guessing your assumption of Amazon's out-of-pocket cost is the source of your insistence that Amazon is determined to restock and re-sale instead of throwaway. That mental model of how big retailers operate is incorrect.

The giant retailers like Amazon/Walmart/Target don't pay upfront for merchandise. Instead, they use a complicated "chargeback model". They just deduct customer returns from the ongoing rolling invoices "net 90" etc.

https://www.google.com/search?q=amazon+walmart+target+%22net...

So, Amazon doesn't really "lose money" for customer returns if they don't re-stock & resell. It's the manufacturers and sellers that take the financial hit. (Which would be the much lower ~$5 instead of $25.) The above chargeback model is why Amazon was so nonchalant about throwing away perfectly good items that were returned by customers. Amazon wasn't incentivized to bother trying to re-sell it. Instead of taking a risk with a tainted customer return, just mathematically deduct it from the next vendor's payment. No ~$25 wholesale cost needs to be "recovered" because Amazon never spent it.

>That's not how businesses operate.

It is (or was) how they operated. That isn't FUD. Canada, France, Germany did investigative reports with hidden cameras and GPS trackers to discover that billions in Amazon merchandise was being dump at landfills and/or burned at incinerators. (What Amazon euphemistically calls "energy recovery"). This includes lots of expensive items that were more than ~$4 such as new coffee machines. The public relations backlash at Amazon destroying so much product was so bad that France passed a new law targeted at Amazon to stop doing it: https://www.google.com/search?q=amazon+france+passes+new+law...

That's when Amazon started a more earnest "re-sale or donate" and reduce the destruction of customer returns.

You seem to be greatly confused. Amazon most certainly does not generally operate on a consignment model nor does it avoid paying manufacturers for returned merchandise.

It is true that it may pay suppliers only 90 days later or something, but this doesn't change the fact that they still have to pay suppliers.

I genuinely don't know where you are getting your information from, but it is quite wrong.

And as I said before, the stuff that Amazon sends to landfills, has a little to do with the fact that it has been returned (except for things that are so damaged they cannot be resold), and everything to do with the fact that there is no longer demand for it and they need their warehouse space for products that sell better.

>Amazon most certainly does not generally operate on a consignment model

No, not a consignment model. A "chargeback model".

>, but this doesn't change the fact that they still have to pay suppliers.

Not for the returned items. The returned items are deducted from the next unpaid vendor invoice. (The "vendor chargeback" or "vendor clawback" in industry parlance). All the big retailers with leverage such as Walmart/Amazon/Target/HomeDepot/BestBuy etc do this. It makes the financial hit from customer returns mostly the vendors' problem instead of Amazon's.

>, has a little to do with the fact that it has been returned (except for things that are so damaged

The new law in France was trying to stop Amazon from destroying undamaged products because of investigative reports. Again, Amazon didn't care about sending undamaged returned merchandise to the landfill by the truckloads because of the chargebacks above. In other words, Amazon never "bought" the items the customers returned.

If it was expensive items like electronics, they would ship it back to the supplier or a liquidator for resale but that often didn't happen for clothes because it wasn't worth it the extra costs to the supplier. That's why a lot of it went to the landfills.

The chargeback model does not operate the way you are describing.

Yes, major retailers have various agreements with manufacturers. Sometimes it's return-to-vendor, because the manufacturer wants the returned items back in order to refurbish and resell itself, etc. Sometimes there are return allowances, such as a 3% rate, meant to cover an expected return rate regardless of return reason, or they negotiate with Amazon for it to determine which returns are genuinely defective, and then those and only those get effectively reimbursed.

But it is completely false to say that Amazon is generally able to pass on the cost of all its returns to manufacturers, that this makes returns zero-cost for Amazon, and that it therefore just tosses returns in landfills. That's not how anything works. Neither manufacturers nor Amazon have any kind of financial incentive to just dump returned merchandise that can still be profitably resold.

>But it is completely false to say that Amazon is generally able to pass on the cost of all its returns to manufacturers, that this makes returns zero-cost for Amazon,

The vendor agreements say if the returns are Amazon's fault, they will not deduct from remittances. If you're a vendor/seller, you use the Amazon Vendor Portal to look at the account status of invoices, purchase orders, inventory, returns, payments, deductions, etc: https://vendorcentral.amazon.com/

When a customer returns something, they can pick from a menu of reasons such as "not as described", "changed my mind", or "wrong size", etc. For those reasons, the amount is always deducted from the seller's account because none of those reasons are Amazon's fault. (Again, Amazon didn't spend the ~$25 for $50 shirt that they're desperate to recover as you're claiming.) In many cases, the seller doesn't want to pay extra to ship the returned items back so they just let Amazon throw it away. That's how a high volume of perfectly resellable items end up in the garbage -- especially before the bad publicity in 2019. Amazon has reduced the environmental pollution of customer returns by giving more options to sellers to restock and resell but it's still not totally eliminated.

EDIT to reply: >Under first-party, Amazon is still purchasing the goods wholesale. Amazon absolutely spent the $25 for the $50 shirt. That is just how it works.

In a 1P relationship (not 3P), Amazon will deduct the wholesale $25 amount caused by customer returns from the next payment to the vendor/supplier. That's how it works. Yes, Amazon acting as 1P buys wholesale -- but they can also deduct the wholesale amounts owed to the supplier for customer returns that are not their fault.

I can't copy&paste the Amazon 1P vendor agreement but here's a similar one from Costco and notice the verbiage:

>14. CUSTOMER RETURNS. Costco may pursuant to Section 13.1 reject or revoke acceptance of and return to Supplier any Product returned by Costco’s customers. For any Products returned by customers, Costco reserves the right to return such Products to Supplier or to salvage, donate, dispose of, re-use, refurbish or recycle such Products at Supplier’s sole cost and expense.

Similar wording for the big retailers like Walmart, Target, etc.

>Nobody on either side is throwing away perfectly good, sellable merchandise just for the fun of it.

You keep repeating this but the investigative reports with GPS trackers put inside new items immediately returned to amazon to trace where they go and hidden cameras at landfills and industrial shredding facilities that receive truckloads of Amazon customer returns shows otherwise. The volume of it has been reduced somewhat, but not eliminated. Amazon doesn't throwaway all resellable items, but they still throw away a lot of it.

OK, so you're clearly confusing two entirely separate things.

When you talk about being "deducted from the seller's account", you're talking about its third-party marketplace business. But when you talk about Vendor Central, you're talking about Amazon's first-party wholesale business.

Under first-party, Amazon is still purchasing the goods wholesale. Amazon absolutely spent the $25 for the $50 shirt. That's just how it works. That's the main discussion we're having. For you to claim otherwise is just flat-out wrong.

The drop-down about the return reasons, and about a seller choosing what to do with returned merchandise, that's about the third-party marketplace. That's a totally separate discussion, but it has nothing to do with the chargeback model you were talking about, and those are decisions sellers are making, not Amazon. And sellers are still making those decisions based on what is most profitable. If an item is "perfectly resellable", then they're still being restocked and resold. Nobody on either side is throwing away perfectly good, sellable merchandise just for the fun of it. If they think there's value in it, it gets resold.

Also:

>> Nobody on either side is throwing away perfectly good, sellable merchandise just for the fun of it.

> You keep repeating this but the investigative reports with GPS trackers put inside new items immediately returned to amazon to trace where they go and hidden cameras at landfills and industrial shredding facilities that receive truckloads of Amazon customer returns shows otherwise. The volume of it has been reduced somewhat, but not eliminated.

Just because it happened once with some items doesn't mean it's a pattern. Obviously, journalists are looking for a "gotcha" here. They're focused on finding the times when Amazon misclassified returns, or when the item is no longer selling, or whatever. They're not writing up stories when their GPS trackers showed that the items got resold.

You're trying to push an agenda here, and I'm done talking. You are falsely mischaracterizing how Amazon returns work and the financial incentives. I'm not saying Amazon doesn't throw out some returns that aren't worth reselling -- literally all retailers do this -- but this narrative that it's somehow magically cheaper for Amazon to just throw out otherwise resellable returns as a matter of standard practice is just false.

>You're trying to push an agenda here,

No agenda. I've been a Amazon customer for almost 30 years and not trying to run a smear campaign. I buy from them every week. I'm just explaining why I've revised my thinking about the "shopping hack" of buying 3-and-return-2 that I used to think was harmless and supposedly a "win/win" for both me and Amazon. My intuition thought Amazon would always restock and resell the other 2 was wrong. Maybe they will but there's a good chance they won't and I'm not interested in being the cause of more environmental pollution. So I try to be more conscientious and avoid frivolously returning things.

Several reasons combine to cause the "illogical" disposal of undamaged returned goods:

- delayed vendor payments (NET90) and how Amazon can deduct the cost of customer returns. That the hidden "perverse incentive" that reduces Amazon's "skin in the game" and motivation to resell it. They're no longer financially on the hook to pay wholesale costs for those returns.

- vendor calculates it's not worth the cost of re-inspecting and re-stocking the merchandise. If the NEW item is now OPEN BOX and must be priced much lower, it negatively affects the ROI calculation even further.

- vendor decides that the extra risk of customers tainting the returned items and causing the next customer to leave a 1 start review (which lowers future sales) is not worth it

The above factors are especially relevant to clothes. I'm ok buying and then returning a Bosch power drill for $200 because I'm confident that the reverse logistics will go through a liquidator instead of the landfill. However, I don't have the same confidence for a $50 shirt. It's the ~$5 vendor's cost not the $25 wholesale cost that must be used as basis for calculating ROI of risk-vs-resale and we have to be realistic that will often favor the landfill.

It's as if you're starting to understand that trying to peddle the returned item is not profitable, given all the costs involved. Recovering it from the user: cost. Sending it to new user: cost. Probability it will be returned again: cost. Reduced retail price: revenue hit.

Say Amazon projected a $25 profit on the item originally based on a revenue of $50. Meaning their total cost had to be $25: procuring the item and shipping it. That didn't work out; so at that point they have a loss of $25.

That doesn't matter; it's all sunk costs at that point.

They have an opportunity to recover the item from the user. How profitable will it be? Let's say there is 60% chance that the item is junk that the next user will also return. Let's say it costs $5 to ship it back to Amazon, and another $5 to ship it to a new user. Let's say it can only be sold for $35 and not $50.

The probability of keeping the $35 revenue is 40%, and so the expected revenue is 0.4 times 35 or $14. We have to subtract the shipping both ways, leaving $4.

Thus the new business venture of recovering the item and reselling it has an expected profit of $4.

This is a waste of time, even though the profit is nonzero.

It is better to procure a new item and make $25.

A truck full of items that make $25 is better than one full of the same items that make $4.

It's as if you continue to double down on not understanding.

Your figures are all extremely exaggerated. If it's a normal piece of clothing, there isn't a 60% chance the next user will also return it. It costs nothing close to $5 to send something back when it's dropped off at Whole Foods or Staples or whatever, and Amazon's shipping costs are also much less than $5. Many items are resold at full price as well. You're also double-counting -- new items have a risk of getting returned as well (obviously), and there's the same shipping price in sending out returned items as used items.

Obviously when it is no longer profitable to resell a return, it gets discarded. Obviously, this happens when the return is too damaged or defective.

But you also have to realize that there are a lot of people who are willing to buy an open-box scratched item for 60% off, who simply can't afford the full-price item new. And a lot of people who will never buy the open-box scratched item under any circumstances. Selling returns allows Amazon to make money off both.

Just think about it this way: once we write off the sunk costs of a return, Amazon basically has zero-cost merchandise on its hands. If you think of it that way, then they can make more profit off the returned item than off the original. They're no longer making their expected $25 profit, they're making $50 profit, in your example. It would be business insanity to throw those items away instead.

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