Returns: Record-breaking Prime Day's aftermath
Suppliers and retailers must prepare for a surge in consumers returning goods — or risk products turning in to "dead money."
Now in its fourth year, Amazon Prime Day has grown into a major shopping event that not only drives online sales but creates ripple effects throughout the entire retail industry. Several retailers now piggyback on the event with their own "Black Friday in July" sales and report a bump in revenues in the days surrounding the 36-hour event. Best Buy, Macy’s and Lowe's all held special in-store and online sales while Target announced its own day of deals with "no membership required."
But much like what happens during the Christmas holidays, big sales can come with big returns. Now in the middle of its 30-day return period from Prime Day, Amazon and several retailers are likely fielding the return of hundreds of thousands or even millions of products.
Prime Day shattered records
Amazon recently announced it had sold more than 100 million products on Prime Day 2018, making it the biggest on record since it started the event in 2015. On July 10, about a week ahead of Prime Day, Coresight Research expected the event to draw more than $3.4 billion in spending, a 40% increase over 2017.
Yet, such an ambitious sale doesn’t come without interruption. JDA Software surveyed more than 1,000 consumers and found more than half of respondents experienced at least some sort of technical difficulty interacting with Amazon over the two-day flash sale.
Some of those technical issues included longer page load times of up to thirty seconds compared to a normal Amazon page load time of only two seconds. Consumers also reported issues with some product pages and the Alexa server, Wayne Snyder, Vice President of Retail Industry Strategy at JDA Software, told Supply Chain Dive.
A quarter of respondents who did experience technical issues on Amazon Prime Day either gave up without making a purchase or spent less than they had planned.
"We know that from some of their technical issues, it seems quite possible that they had not quite forecast the high level of success," Snyder said. "We're now checking out how they respond to the returns challenge."
Returns could reach 20 million
Given Amazon’s generous return policy and the sheer scale of Prime Day, the retailer could see a higher return volume in the coming weeks. Amazon allows customers to return most items within 30 days of purchase for nearly any reason. Exceptions include prepaid cards, health and personal care products, and food products.
While it’s very generous by consumer standards and has influenced return policies across the retail sector, it can also be costly when factoring in the complex reverse logistics of getting web-based purchases back to where they need to go. Amazon revealed in its 10K filing to the SEC for 2017 that it spent $21.7 billion last year for sortation, delivery center and transportation costs.
"There could be more returns coming. People may have taken advantage of it and bought things they really didn’t need or want because it was such a good deal and they can take advantage of Amazon’s no-real-questions asked [return] policy," Tony Sciarrotta, Executive Director of the Reverse Logistics Association, told Supply Chain Dive.
A return rate of 20% could mean more than 20 million items are on the way back through Amazon’s reverse logistics system. JDA also found 40% of respondents made unplanned purchases at the time, something that could also boost the return rate. "Based on the volume, it still means a lot of people are potentially returning items which can be a big logistical challenge. It’s a lot of units," Sciarrotta said.
How Amazon makes reverse logistics work
Amazon processes and handles returns in several different ways, Sciarrotta said. Many returns are routed through reverse logistics centers. Certain items will go back to their site while others may go back to the manufacturer to a liquidation source. The retailer now also offers consumers the option to return products to Kohl’s Drop-off locations and Amazon Lockers at Whole Foods.
Amazon also started a new program in late-June which uses startups and entrepreneurs around the country to deliver their packages. The retailer says it will offer more ways to ship its packages without having to rely on outside carriers and will offer customers the ability to track their packages on a map and contact drivers to change directions.
Retailers that have seen a surge of business during the recent Prime period could also experience an increase in returns through mid-August. "Obviously, a lot of retailers are focusing a lot more attention to trying to direct this, so whether it be local fulfillment centers, quick re-processing, greater automation. Products that are being returned and aren’t back on the shelf are just dead money," Snyder said.
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