How Amazon returns are changing physical retail

Lines of people queuing up outside UPS stores to drop off an Amazon package they are returning using a QR code have become a common occurrence in many cities to say nothing of the revenue it generates for UPS and other major couriers. This may soon be a thing of the past. When navigating Amazon’s return order flow you may have noticed a relatively recent change. If you want to return a UPS store or access point there is now a fee of about $6 or $7. If you want to return package without an incurring a fee you will need to return it at a Whole Foods or a Staples. For context Whole Foods is a wholly owned subsidiary of Amazon that was acquired in 2017. It appears Amazon has taken steps to integrate Whole Foods into its logistics operations and use one to drive traffic to the other. There are several reasons this makes sense. When trucks deliver produce and inventory to Whole Foods, they presumably are returning empty. Since they are making the route anyway, picking up packages that need to be returned and bringing them back makes a lot of sense. Unlike a shipping courier, Whole Foods is only accepting and processing Amazon packages. This allows for a greater degree of standardization and streamlining than a shipping courier could support since they are be dealing with all kinds of recipients. You can just bring the order you want to return in without needing to worry about packaging it, taping it together or having a return label. There is overall less friction. If Walmart tried to process returns on behalf of various third party returns this would not be as seamless since each company would have slightly different requirements giving rise to friction.

There is an even greater benefit though to Amazon managing returns via Whole Foods. When you return a package, they give you an excuse to visit their store. The returns are typically on the second floor or in any event not near the front the store. By placing the returns near the back, you are forced to browse the store where you may well make another purchase. Whole Foods is fundamentally a grocery store so it’s not far-fetched to assume that when you go there you realize you need a lemon or a carton of milk. In any event when selecting a return location, you will probably pick the Whole Foods that is closest and most convenient for you. If you haven’t already been introduced to it this becomes a way to bring you in the store. Once you’ve visited the first, got a sense of the layout and developed familiarity, you are more likely to revisit in the future. Driving traffic to Whole Foods is a major outcome of this strategy. You probably will return more than one item in due course and even they don’t convert you to Whole Foods the first time, they get a few bites at the apple to do so.

Staples and Kohl’s understand this which is why they are accepting Amazon returns in their respective stores. There is no reason more brands with a retail footprint won’t go down this route. Thinks about recycling printer ink or electronics. Many office supply stores will accept old cartridges as a way to drive traffic since when you are disposing of your old cartridges is probably when you are looking to buy new ones. When a customer gets off the couch and decides to go to a store the bar for doing so is high. For dozens of customers to be lining up every day at a given UPS location to return packages and brands not being able to engage with them in store is a real missed opportunity.

In densely populated areas like New York City Whole Foods has a robust retail footprint. While not in every zip code they are within reasonable walking distance or short commute. This puts Amazon amongst a handful of companies that have the physical network to set this up. Most ecommerce brands don’t a physical location close enough to the majority of their customers for this to be convenient. If the closest warehouse is an hour and half away that’s too much work for returning a package. Many clothing retailers such as Lands’ End and Banana Republic have pursued a similar model however often when you go to make a return there isn’t a physical location close enough that makes sense and so you end up incurring the fee to return at a UPS store.

Another avenue they might explore is click and collect. Many sites will waive shipping costs if a customer agrees to pick up the item in store. One could envision Whole Foods being transformed into a click and collect location for Amazon prime. This too would drive traffic into the stores. Given how central fast shipping and convenient deliveries are to the Amazon experience and the fact that many of the items ordered are rather bulky, this is not the likeliest outcome. No doubt concerns over package pirates may drive some customers to do this for the vast majority getting something you ordered delivered to your doorstep is half of what makes ecommerce convenient. This can therefore likely be ruled out.

The synergies don’t stop there though. Whole Foods packaging now includes advertising for Amazon prime and so this is a two-way street. Amazon drives traffic to Whole Foods through its return policy. Whole Foods runs free marketing for Amazon through its packaging. These are the visible synergies.

THE ELUSIVE FOURTH PILLAR

There is one less obvious but momentous aspect to this strategy. For years Amazon has sought that elusive fourth pillar. Another wildly successful business that can match its existing ones in scale and success. Many of Amazon’s most successful products started out an internal experiment aimed at solving internal needs. AWS is the ultimate example of this. They needed cloud servers to operate their ecommerce store. They prototyped and developed an inhouse solution that they then made available externally to clients. Today AWS is Amazon’s single largest driver of profits. When it comes to logistics Amazon already has an extensive delivery networks or trucks, couriers, micromobility vehicles, ships, planes and drones. In adding returns Amazon is completing the spectrum of services needed to operate a courier service. Amazon has built an internal logistics network that rivals in scale and coverage any of the major established shipping couriers. It’s probably reasonable to assume that one day not too far in the future Amazon will offer an external courier service that will become that long sought after fourth pillar. They’ve spent years optimizing and perfecting shipping, deliveries and returns. Renting that infrastructure out to third parties is a natural new source of revenue. The fact that Amazon and UPS seem to be decoupling is a telling precursor.