What Retailers Like Amazon Do With Unsold Inventory


Every year, retailers and manufacturers end
up with billions of pounds of excess unsold inventory that they’re
sending straight to landfills. And for apparel, they often burn it. And it’s creating more than five billion
pounds of waste a year in the U.S. and over fifteen million
metric tons of carbon dioxide. That’s equivalent to all of the trash
produced by five million Americans a year, or fifty six hundred
fully loaded Boeing 747s. In Germany, a recent study found that
10 to 20 percent of clothing goes unsold, an estimated 230 million
items there each year. And the amount of inventory waste is
only growing as Amazon leads the way in bringing more shoppers online, where the
rate of returns is 25 percent, compared to just 9
percent for in-store purchases. Returns are piling up as walls
of shame in warehouses everywhere. We wanted to find out, why is this
problem so big and what are major players like Amazon doing to cut back
on the wasted inventory clogging our landfills and our planet? We have spoken to over 120 retailers and
over half of them have said that they are disposing of over 25
percent of their customer returns. It’s actually cheaper for them
to just throw them away. To understand why, you have to look
at the complicated journey a return item takes, from the moment you bring
it back, potentially all the way to a landfill. It goes back through a
distribution center where goods can sit for a while, and then they end
up going to liquidators and vendors, and then they get passed down to
smaller regional wholesalers, and then they go from there to dollar stores,
pawn shops, thrift stores, eBay, mom-and-pops at flea markets, and then
they get to consumers in certain cases. And when when goods are cheaper
and used and have to go through that whole process, often it doesn’t make
economical sense, so they end up in landfills. And other types of items,
if it’s larger, items like a used TV, going through that process, it has
a high likelihood of being damaged and destroyed and ends up
in a landfill as well. It’s this expensive, complicated reverse
logistics that keep more products from being resold or recycled. Most organizations don’t really inspect every
single item and say, is this resellable, is it not? What level of effort would it take
to get this back into a resellable condition? And that’s why companies take kind
of the easy route out and just say, well, let’s
just destroy this. And that way we can do that in bulk. And it’s not taking up valuable
time and resources from the organization that has to do other things. And some types of products can’t
be resold, like open, over-the-counter medicines. And some simply have no resale
value, like DVDs sold on the international market. Any DVD, once it’s
returned, the resale value is negligible to zero. And so in those cases, you didn’t want
that to flood the market and become a a zero price point to
compete with your brand new product. But at the same time, you didn’t
want to pay for it to return. So in those cases, we had markets
where it was 100 percent in market destruction, meaning we didn’t take
a single unit back. Amazon and other retailers won’t publicly
disclose how much inventory they destroy. Let’s acknowledge just for a fact
that there’s a lot of product waste. Obviously, that’s true. We know that companies are getting rid
of a lot of products because they’re either out of date or
they don’t work, they’re unfixable. And that adds to landfill mass. So the question would be for organizations
is, well how do we reduce that? Amazon’s answer is that it launched
a program called Fulfilled by Amazon Donations in September. Donation is now the default option for
all sellers when they choose how to dispose of their unsold or unwanted
products stored in Amazon warehouses in the U.S. and the U.K. The donations program was launched after
CBS reported earlier this year that a single Amazon facility sent 293
thousand products to a garbage dump in just nine months. After a
French documentary found Amazon tossed three million TVs in 2018, the country vowed
to outlaw the destruction of unsold consumer products by 2023. And the E.U. has an overarching packaging waste
directive that sets guidelines for limiting waste for
manufacturers and retailers. But in the U.S., experts say
retailers are up against a relatively unregulated infrastructure around
waste and recycling. We have a waste infrastructure,
particularly in the U.S., that is not consistent. There are no national
recycling laws in place. There are some statewide initiatives, of
course, but they are sporadic. Apparel has the biggest problem with
excess inventory, in part because of the current trend of fast fashion. Apparel’s a two trillion dollar market,
which is the largest consumer vertical. So it’s much bigger than
movies, bigger than music, bigger than books, although 30 percent of
it never gets sold. And a lot of that
ends up in landfills. In 2014 compared to 2010, the
average customer bought 60 percent more clothing, but kept each
garment half as long. H&M reported in 2018 that it had 4.3 billion dollars worth of unsold clothing,
up seven percent from the year before. It incinerates some
of those clothes. Much of this is because unsold inventory
is pulled to make way for the latest fashions. We’ve moved from a two
season fashion year to a 50 season fashion year. New clothes
coming out every week. You don’t want that prior season
product available, it’s going to really cannibalize your next wave of sales. Burberry famously revealed last year
that it incinerated unsold and returned products worth 28.6 million British pounds, a
practice it’s since stopped. So the reason that very often
these companies will incinerate products that are perfectly fine and good is
because they don’t want them out there in the marketplace. Right, they don’t want
the brand to be perceived as low cost. So an example is
a lot of luxury sellers. A lot of luxury sellers will not allow their
items to be in like a TJ Maxx or a Marshalls because they feel like,
right or wrong, that it degrades the quality of the brand or
the view of the brand. But in some cases, incineration can
actually be more sustainable than dumping clothes in a landfill. In H&M’s case, they have been
recovering energy from that incineration process. So there are power plants,
for example, that use energy from burning apparel products to input
into their power plant. Another useful end point for all
this apparel and other unused inventory is secondary markets. This includes foreign countries where unused
goods are often donated or sold at steep discounts. World Vision is a major non-profit
that helps retailers donate their excess inventory. It says it received
84 thousand pallets of goods and shipped them to 33
countries last year. Even in secondary markets though, the
waste can pile up, especially after China implemented its so-called “National
Sword” policy in 2018, limiting how much waste countries can
export to Chinese landfills. Southeast Asia in particular, has borne the
brunt of this, where waste is being shipped to these countries, and
you then start finding out that there are heaps of waste garments piling
up on islands in Southeast Asia, because they also didn’t have the
infrastructure to deal with this volume. Other secondary markets for unused goods
to go are discount retailers like TJ Maxx and outlet stores, where
returned and unsold merchandise is sent in bulk, marked down, and sold again. And the online equivalent of this. So you can go to some of these
third party companies and buy things that have been returned, kind of
almost like a salvage process. And the really fascinating thing is some
of that ends up back on the Amazon marketplace. Amazon even has
a separate program called Amazon Warehouse, which sells renewed goods
at a discounted rate. And some retailers, like Apple, even
include mandates about recycling and reusing in its contracts. Any of Apple’s products, which are
high value, and that’s often what drives that in the first place,
have to be returned to Apple. And they actually reuse as many
of the components as possible. It also makes sure that their brand
is not undermined by making its way onto a secondary black market. H&M and others, like Patagonia, have
also started programs to help more used clothing find a second home. They will take trade in Patagonia items,
give you credit for it, and then they’ll repost it for sale
on their Worn Wear site. And then there are other companies,
like Nike, that have really been innovating on designing their product for
circularity, so that it’s easier to recycle them and reuse them again. The take-back systems in retailers such
as H&M, where you are encouraged to take back your clothes, some of
those will be put towards insulation for carseats, for housing. Returns are a major reason why the
apparel industry struggles so much with wasted inventory. So in the apparel
industry, they probably have it the hardest, because it can be upwards of
more than 50 percent or even nearly 100 percent of purchases are returned,
because you’re buying two or three of the same item and then keeping the
one that fits or looks best on you. 65, 70 percent of what we return
is because of fit and/or style-related things. Boston based True Fit is trying
to help with just that, by using data and machine learning to better
match a customer’s fit and preferences, so they order
and return fewer items. Our role in this was to organize
billions of dollars of transactions from the retailers, and you know thousands
and thousands of brands feeding us their product data, and
consumers creating this profile. We have 130 million registered True Fit
users now who have shared with us like, here’s what I care about. True Fit works with major
retailers like Walmart and Target. Returns are going to go down and people
are going to keep what they love because we’re going to figure
that out better, right? And the combination of both of those
two things should make the production more efficient and so you have
less going into a landfill. Nike has a feature on its app that
uses your phone’s camera to scan your feet with 13 data points to
suggest the right shoe size. MTailor uses a similar concept, the
custom clothing fit app uses your phone’s camera to measure 17 different body
points that it claims are 20 percent more accurate than
a professional tailor. And there’s in-person options like
Formcut, where customers get clothing size measurements after stepping into
a 3D body scanner. Amazon is also tackling high apparel
returns with Prime Wardrobe, a program launched in 2018 that lets you
try up to eight items before you buy them. A similar program is
Rent the Runway, which eliminates returns by renting out clothing. And H&M just unveiled a line
of conscious exclusive dresses and skirts available for rent. Google is also
leveraging its massive amount of data to help its retail partners like
Macy’s, Target and Kohl’s understand what online shoppers want and cut
down on returns and waste. Google, on an aggregate level, has an
understanding in a country or a geography what people
are looking for. So getting that forecast right, how
much product do you need? What should you be buying? What stores should you
be allocating it to? Now, a handful of small companies have
sprung up to help with the waste and help retailers save money. Optoro is one of them. It collects data on why returns come
back, then optimizes next steps for its retail partners like Best
Buy, IKEA, Target and Staples. Real time, it captures the value of
that product in those markets, and then it captures the data on how much
it would cost to get the good to each specific channel. And making sure that each item is connected
to its next best home and not a landfill. Some smaller companies have even
made a business out of taking wasted inventory off bigger company’s hands
and disposing of it for them. One such company, Stericycle, estimates
it’s destroyed or recycled 80 million pounds of unsold items
for manufacturers and retailers. And some big names, like
Nordstrom, are experimenting with end-to-end automatic sorting and inventory distribution,
which it hopes will mean more efficient reselling of returned
items, cutting down on wasted inventory. Historically, you may find
that solutions are very much segmented for fulfillment, as distinct
from sortation as distinct from returns. And here at Nordstrom, we’re
taking a holistic approach for end-to-end solutions and we’re really excited
to be the first retailer to adopt this combined technology. Amazon is also using robots to
increase the efficiency of its distribution centers and eventually reduce waste. It also has a massive amount
of data on customer behavior. Amazon says its systems are constantly
evaluating what its customers will want to buy, placing orders with vendors
to ensure it stocks the proper amount of inventory. Their technology
can make predictions that says, “Hey, this product, there’s going to
be others that want it. There is demand for it. So if we get
it back, and we get it back in the region where it was shipped, we actually
think were going to be able to ship it to a buyer
in that same spot.”. From automation to algorithms, the good
news is big tools are being developed to help retailers and
suppliers find more efficiency. And hopefully, one day, send fewer
of their excess goods to landfills. The trends are going
in the right direction. There’s great brands that are helping
to lead the way, and there’s regulations in certain cases, which we’ve
seen more so in Europe, that have also helped guide people
in the right direction. If we can provide, as consumers,
a demand for those more sustainable products, it becomes easier for them to
do those jobs in improving those systems.

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