Amazon Trying to Outrun ‘$100 Billion Problem’
Amazon claims the $10 promo that’s set retail tongues wagging isn’t about cutting costs.
“We offer customers a variety of ways to get their packages, inclusive of delivery and pickup options,” an Amazon spokeswoman said of the $10 incentive to encourage store pickup versus more expensive door-to-door delivery. The rep also pointed out that the $10 Amazon Pickup promotion “isn’t new,” saying it’s a “long-running program” for people interested in trying out a “convenient and secure offering” to retrieve their packages. The Everything Store is also charging $1 when people return certain items at a UPS location when there’s a Whole Foods, Amazon Fresh or Kohl’s store near their delivery address, a move the rep said is neither new nor a cost-cutting strategy, though she declined to disclose when the fee was last assessed.
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One source familiar with the $10 offer said it only applies to customers with orders of $25 or more who haven’t used Amazon Pickup or haven’t used it in the past year. This individual also said the promotion has been offered “on and off for several years.”
Amazon started belt-tightening last year, implementing hiring freezes, shuttering certain divisions and reshuffling its industrial real estate portfolio, after aggressive growth during the pandemic.
In February, Amazon reported its first annual net loss since 2014, with the amount reaching $2.7 billion on a 9 percent net sales gain to $514 billion. The net loss also includes a pre-tax valuation loss of $12.7 billion from the company’s Rivian investment. CEO Andy Jassy said Amazon’s top priority was cutting costs.
The company returned to the black in the first quarter this year with net income at $3.2 billion against a year-ago loss of $3.8 billion. Net sales rose 9 percent to $127.4 billion from $116.4 billion a year ago. Excluding the $15.5 billion impact from the foreign exchange rates throughout the year, net sales increased 13 percent compared with 2021. Fulfillment costs ballooned 21 percent in the quarter to $603 million.
Jassy said Amazon is on track to have its “fastest Prime delivery speeds ever in 2023” and has reworked its national fulfillment network with a regional orientation to deliver orders faster while lowering costs.
But growth is slowing at the tech giant’s profit-generating Amazon Web Services (AWS) cloud computing business in a trend that’s continuing from the first into the second quarter. The company has cut 27,000 jobs so far this year, affecting divisions including AWS.
Elsewhere on the returns front, Asos, Boohoo and Zara are rethinking how they handle the items people want to give back.
While critics might disagree with Amazon’s framing of the promo and fee, some experts have their own theories about what Amazon is up to.
Mike Scheschuk, chief marketing officer and president, small and medium business fo Jungle Scout, whose software helps sellers succeed on online marketplaces, said products dropped off at a Whole Foods or Kohl’s store can be aggregated and sent back to Amazon in bulk.
“To me, it looks like this is a trial where they’re attempting to see what the customer reaction is and determine if people actually change their return habits as a result of the fee,” Scheschuk said. He doesn’t think the $1 fee is sufficient to sway consumer behavior, but could set the framework for “potential scenarios in the future where that dollar fee could increase, and that eventually will change consumer behavior.”
People who choose to have items in their order grouped into a single delivery, instead of multiple dropoffs with faster shipping, earn a $3 digital credit, an option that’s been around for several years.
“That option has been well over a year old. They’re trying to spin [the bundling] as an environmental move. The reality is it’s just more efficient for Amazon to only have one shipment to your house instead of having to come three times in any given week…. At the same time, it saves them money,” Scheschuk said.
He added that while Amazon will try everything to juice profits, it could also be trying to cut returns to improve sustainability. He pointed to Amazon’s weeks-old badging system showing shoppers frequently returned items. People might think twice before ordering if the product might be a poor fit.
Spencer Kieboom, co-founder and CEO of Pollen Returns, which helps online businesses offer box- and label-free returns, the $1 charge isn’t a returns fee but a re-stocking fee to offset the cost of working with third parties to manage this area of the business.
“When you peel back the layers, the return label costs are truly the smallest piece of the pie that makes up the $100 billion problem, which is restocks. The fee is to deter a return,” Kieboom said. “Retailers are at consumers’ mercy to get the goods back into the supply chain, and therefore back to the retailer. [A customer may have] initiated a return, but the retailer still doesn’t know when the item will be dropped back into the supply chain…. It can be a month or two before the customer actually sends it back.”
While Kieboom thinks the return fee is a bad idea, he believes the move will help Amazon collect valuable data that it could use to target and warn repeat returns offenders that certain items are final sale only.
Micah Solomon, a customer service consultant who has worked with Walmart, said the $1 fee is still cheaper than what many retailers automatically deduct for third-party returns.
“When you return the item to an Amazon-owned outlet, it’s not only a free return, but there’s no stocking fee. This is means Amazon is eating anywhere from $3 to dozens of dollars per return. And you don’t even need to package your item and slap a label on it—you just bring in your phone with a barcode on it and that’s that,” Solomon said.
Rising costs might push some retailers over the edge and decide they simply can’t afford to absorb the burden of returns, Solomon said, noting that shipping, though “free” to customers, has long been a steep expense for merchants.
