Planet Money - No such thing as a free return

Episode Date: January 13, 2022

Lenient policies have shoppers making more returns than ever — around half a trillion dollars worth of products. Today, we find out the fate of some of those returned goods.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. A couple weeks before Christmas, around 5.30am on a Friday morning, I went down to a little strip mall in Raleigh, North Carolina, to meet up with Aslyn Spencer. Good morning. Are you Aslyn? Yeah. Hey, Alexi. Hey.

Nice to meet you. This is our tent. Aslyn and her friend Michaela Ridgeway have camped overnight in near-freezing temperatures under the awning of the Treasure Hunt Bin Megastore. We peer through the store's front windows to scout out what's inside. Got a robo-vacuum, an air fryer. It's a big open space filled with rows of long black bins stacked high with all sorts of consumer goods, just ready to be plucked.

It sounds like some people just see an Instant Pot, but you see an Instant Pot could be anything. Yeah. It's fungible. Instant Pots to us are $30, $40 in our eyes. Yeah, we really see money. Yeah, we don't see an item. I'm like, there's an Instant Pot, that's $30 right there. That's exactly what I say.

Aslan and Michaela are resellers. They're part of a growing category of entrepreneurs that buy and then resell the things the rest of us have returned to places like Amazon and Walmart. Because when you return an item, it doesn't always end up back on the shelf. Sometimes it ends up at a place like the Treasure Hunt bin megastore and then bought by resellers like Aslan and Michaela. So it started off with the weighted blankets, and then it went to the Instant Pots, and then it went to the air fryers, and then all of a sudden it was the massage guns.

And then the next week, it'll feel like everyone has one. And so then we have to move on to a new item and get that, and then it just repeats. They've been at it for a few years now, and they make decent money. Aslan and Michaela are both in nursing school, and they say when they can ride the consumer trends of each consecutive hot ticket item, they can pay for their tuition and school supplies. They won't say exactly when they arrived the night before. That's essentially a trade secret, because the whole point is to beat out their competitors, to be at the very front of the line when the doors open at 10 a.m.

That's when this week's truckload of items that people have returned will be sold off for $10 a pop. How important is it to be first? Well, like if you look in there right now, there's like a robo vacuum, there's a heater, there's two really nice air fryers all right there. Today, two of their fiercest regular competitors have managed to beat them to the front of the line. So what they lack in position, they're going to have to try to make up in strategy. They use binoculars to spot hidden treasures inside. Then they draw up a map and plan out little plays, almost like a football coach. What are we looking at? Okay, possibly one of us is going to go after the fireplace and the blender and the other will go after like the new wave air fryer over here

or the smokeless grill back there. Depending on where they go in front of us. So if the guys ahead of them go for, say, the robot vacuum in bin one, Aslan will swirl over to bin two to snag maybe the air fryer. And she's going to have to pivot quickly because once the doors open,

anything goes. The line has grown to over 50 people. Does everybody like rush in at the same time? Oh yeah they all run. They all run and they push, they shove, they throw stuff. It's awful. It's a battlefield in there literally. As it gets closer and closer to 10 a.m. a nervous energy starts to fall over the crowd. Following us might be a little hard because we're going to be running and it's going to be people everywhere. But you probably can get behind us as long as you can keep up. You might get beat up in these aisles. Make sure your headphones are on good, though, because they will whack it right off of you.

They will steal it off of you, too. As the last couple minutes tick down before the doors open, Aslan and Michaela get all somber and quiet, kind of steely-eyed. It feels a little bit like one of those World War I movies, when all the grim-faced soldiers are lined up shoulder to shoulder in the trenches, and they're just waiting for the signal to run into no man's land. All right, let me have your attention. We're going to start calling the numbers. The Megastore employees throw open the doors. It's time to get our secondhand shop on.

Hello and welcome to Planet Money. I'm Alexi Horowitz-Ghazi. And I'm Nick Fountain. At this point, returning the stuff we buy because it doesn't fit or we happen to find a cheaper version has become second nature. And we are returning more things than ever before. Because we're buying more than ever before. Pandemic, baby! But what happens to all that stuff we send back? Today on the show,

we follow the Instant Pot through the giant web of returned goods to find out how companies are dealing with around half a trillion dollars of consumer regrets. All the way back to the battleground of the bargain bins. Before we go back to the mayhem of the treasure hunt bin megastore, we wanted to figure out how it got filled with all the stuff that you and I have returned in the first place. So we called someone who spent decades digging into the hidden world of the returns economy. Hello. Tony. Lexi.

Thanks so much for taking some time to chat. I appreciate it. I have a weakness, Lexi. I love to chat. This chatty Cathy is actually named Tony Shirota. Talky Tony. He's the executive director of the Reverse Logistics Association. Reverse Logistics is basically a fancy way of saying managing returns. And the number of returns, Tony says, is bigger than it's ever been. The volume is somewhere between five and six

hundred billion dollars this year. Which is an enormous amount of stuff. To put it in perspective, that is bigger than the entire Austrian economy or the Medicaid program here in the U.S. On average, American consumers return about 10% of the things we buy. And for online retail, the numbers could be more than double that. Tony tells us the story of retail returns started with stores like Sears over 100 years ago. Back then, they called them satisfaction guarantees, and it was a way to get people to buy more by reducing their risk. If people didn't like something, they could always return it.

But then in the late 90s, returns started to skyrocket. Tony actually had a front row seat to the first stage of this returns liftoff. He was working at a major electronics retailer at the time and kept running into this problem. Customers were struggling to figure out the newest gadgets and then just giving up and returning them. And in the early 2000s, the returns problem would grow much bigger. For a long time, many people had been hesitant to buy stuff online, things they couldn't test or touch in person. But then online retailers, led famously by one shoe seller, Zappos, found a solution by opening up a Pandora's box of free and easy returns. Zappos encouraged you to buy multiple styles, multiple sizes, try them on at home, we'll pay for any returns.

Once that bar was set, how does anybody exceed it it they're all scrambling just to meet it companies about to figure out a new set of rules around what can be returned and when if the return window is too short fewer people will take the risk of buying things in the first place but if the return window is too long think like lifetime returns companies run the risk of getting, you know, shredded T-shirts returned decades after they were sold. Stores like L.L. Bean and REI found that out the hard way. A middlingly generous return window, the Goldilocks return policy, can help decrease returns slightly. In part because of what economists call the endowment effect. And that's the idea that just the mere fact of owning something

imbues it with this added value that makes it harder to part with. Now, many companies describe their return policies as free and easy. But just like with quote unquote free shipping, the company's costs are actually baked into the price. We all pay more because customers are taking advantage of these policies and returning literal tons of stuff. And Tony says if you think the forward supply chain is convoluted, consider the reverse. Processing these mountains of stuff in various states of unboxing.

Tony says, say you're a big retailer, like Amazon. Let's just say you're getting like 15% of the things you sold returned to you. And all that is being gathered from all over the place and delivered to your returns warehouses in these big tractor trailers. There is nothing efficient about opening up a trailer full of 26 pallets of return goods that are not rewrapped nicely as they were delivered. You might have a thousand items. Every item is likely to be different. You don't get 10 of this, a hundred of that. You get onesies. And onesies are a nightmare. These onesies, or one-off items, are a nightmare because each of those items needs to be inspected.

And then the company needs to make a quick but crucial calculation to decide its fate. Can we sell this returned good for more than it costs to process the return? You need to look at it and say, does this look like new? Can it be resold as new? Or do we have to do something else? For electronics, the answer to that first question, can it be resold as new? It's pretty easy. If it's electronics, the government has said anytime something's been plugged in,

it can no longer be sold as new. That's a government law. But Tony says that even though you can't sell many returned electronics as new, it can still be worth it for manufacturers to take back returned merchandise and try to sell it again secondhand. The resale value of that slightly used or refurbished HDTV, for example, The resale value of that slightly used or refurbished HDTV, for example, can be enough to offset all the transportation and labor costs of inspecting, repairing and repackaging it. All right. So high value items like electronics may be worth reselling. What about the other end of the spectrum, the cheap stuff? So Tony says garments are the classic example of this.

Think jeans, slippers, you know, bucket hats. Now, returned clothing doesn't face the same legal hurdles as electronics if you want to try to sell it as new. But it does take a lot of time and labor to sift through clothing for stains or tears or smells. And in the world of fast fashion, that delay will often mean a particular style has come and gone by the time a company's ready to resell it. Some clothes end up being worth so little, many companies decide to just donate them, get a write-off, or even send them straight to the landfill. In North America, we don't think twice about throwing things away versus trying to recycle

or do something else with them. It is extremely hard to put a number on the environmental cost of all this. But some experts estimate that nearly 5 billion pounds of returns make it to the landfill each year. Piles and piles of perfectly good, useful things, manufactured and shipped all over the place that will never be used. But not all is lost. There is a whole universe of stuff that isn't last season's jorts or those resellable high-end electronics.

Think things like toys, kitchen gadgets, sports equipment. For these returned items, sometimes the best move is to sell them off in bulk, to liquidate them. There is now this whole ecosystem of companies dedicated to the liquidated goods market. Some of these middlemen auction off container loads worth of returns to the TJ Maxx's and Ross Dress for Less's of the world. And some sell to individual entrepreneurs. You yourself can right now go online and buy a pallet of Amazon returns. There's a whole YouTube genre of people unboxing these things. Ooh, looks like there's a hairbrush.

Oh. Oh, and there's a hair inside. Our white noise machine, some Clinique cleanser, toothbrush heads, some foundation. It's a single 15-pound weight. And Tony says the pandemic has actually accelerated newer business models built around returns. accelerated newer business models built around returns. Because while our time in and out of lockdown has turbo boosted online retail and also driven returns to a high point, the pandemic has also created the conditions for crafty ways of dealing with all those returns. Somebody put two and two together and said, well, there's all these empty retail stores around.

There's these truckloads of goods that are liquidated. Let's throw the truckload into the store and see what happens. Tony is talking, of course, about places like the one where resellers Aslan Spencer and Michaela Ridgeway camp out each week. The Treasure Hunt Bin Megastore in Raleigh, North Carolina. They simply put liquidated pallets of goods in the store, open the doors. It's like a feeding frenzy. It's almost like a Black Friday every weekend. After the break, we dive straight into the feeding frenzy.

I almost got run over. I got breezed. Oh my god. Breezed. Aslan and Michaela, our intrepid returns resellers, have tried to prepare me for what's about to happen. Are there like special moves? If you know it has a handle, you want to grab the handle and sling it in your cart. The sling move, classic. Their goal is to find as many high-value items as possible

that they can resell on sites like Facebook Marketplace and eBay. Each item is going to cost them $10. So in order to make a profit, they need to find things that they can sell for much higher. $30 minimum. They know they'll need to be faster and craftier than the dozens of other resellers and bargain hunters behind them in line. And they do warn me about how frenetic it can get,

but it's still hard not to feel a little shell-shocked once we finally run through the doors. We're inside. This looks like an air fryer. Oh yeah, we've got a big air fryer. It's in a bin. As soon as we get inside, it's a sensory overload. It's all bright fluorescent lights, shopping carts and people everywhere, pounding pop music. It's like a little retail zombie apocalypse to the tune of Shape of Your Body. People are sprinting down the aisles, ripping into mounds of stuff in each bin before dashing off to the next one.

It's like Supermarket Sweep meets Mad Max. I almost got run over. Did you get knocked out? Robo vacuums? Oh, nice. Robo vacuum. You're not going to get that pet drinking fountain? I'm not sure. In spite of my own poorly informed suggestions,

Aslan and Michaela managed to stay on task, executing their carefully crafted plan and only going for things they know will sell for at least $30. For all the intense buildup, the window of shop-portunity, if you will, when fortunes are won and lost, it's all over in about five minutes of vigorous digging. Once Michaela and Aslan's shopping carts are full, they're relaxed enough again to start giving me guff. He may have gotten beat up.

I turned around, his glasses were falling, his hat was on, and I'm like, great. He's never coming back. Yeah, I earned my bruises. Did you really? Someone run into you? I just got clipped. Just a wing, though. I bet I know who it was.

Nothing essential. Before Michaela and Aslan head to the cashier, they got to do a little homework. We reconvene in a corner of the store to decide which items they're actually going to buy. Aslan and Michaela start examining the goods one by one. They want to make sure there aren't any dents or missing pieces or other obvious problems. Air fryer's good. The pots and pans are good and the instant pot's good. Then they look up what the products are currently going for online to see if they can still turn a solid profit. Trendy items like the latest air fryer or massage gun, those are tricky. They can retail for over $100.

But Aslan and Michaela have to watch the online market closely because demand can fade fast. Consumer trends move so quickly, they tell me, they've actually been stymied multiple times by online sales that have appeared during their drive home from the bin store. That can mean a big last-minute hit to their bottom line. So they have to be careful. And if they see that prices have fallen far enough, they'll throw the things they picked back into the bins. I think we might put the weighted blanket back because they're kind of hard to sell right now. You're turning your back on your bread and butter?

I know. I know. By digging through these piles of returns every week, Aslan and Michaela have in some ways become more attuned to the whims of consumer tastes than anyone I've ever met. They know what's hot, what's not, and they know every trick people pull when they're returning things. What are we looking at here? We're looking at some headphones to see if they're wired or wireless because, you know, the price depends on whether or not they're wireless. Nobody wants wires anymore, huh? I know, it's boring.

But when they go to examine the headphones, Michaela discovers that the person who returned them took out the $80 wireless headphones and replaced them with a $20 wired set. So yeah, they're not even the right headphones. Presumably helping themselves to a $60 discount. Crafty. Maybe theft. Definitely theft. Aslan and Michaela say they see this kind of move all the time. And the National Retail Federation says that in 2020, fraud accounted for about 6% of returns, about $25 billion worth. After about half an hour inspecting the goods,

Aslan and Michaela finalize their list of winning items and head for the register. When all is said and done, they've spent a total of $160, which is about their usual. On average, they say, they'll make a combined $800 or so a week, enough to cover tuition and school supplies and dog food. Every once in a while, they will hit big. Aslan once found an iPhone in the bins, which she flipped for a modest $100. And Michaela found a MacBook in an unmarked cardboard box, which she actually did not resell. She decided to keep it. Though she later found out it had been stolen and then returned when she got locked out of it in the middle of writing a term paper.

I ask if Aslan and Michaela ever get exhausted living in this constant flow of returned gadgets and price fluctuations and intense physical competition. This life where every Friday is Black Friday. And Aslan told me it does make her feel exhausted almost every week. For me, I hate Wednesday. Like anybody can tell you Wednesday, I'm like, do we really have to go to liquidation tomorrow? Like we all sit there like, maybe we should just miss it this weekend. But then we're like, what if they put out, you know, something really good and we miss it? You feel like you're going to miss something if you don't go. It's like the Powerball. You know, you play nonstop and then that one time you don't play. That could have been your number.

Does it feel like an addiction kind of? It is definitely addiction. I got to say, until working on this story, I guess I didn't realize how much everyone was already taking advantage of these generous return policies. And as someone who doesn't really return anything ever, I can't help but think, am I the sucker here? Like the cost of returns are already baked into the prices I'm paying. So I almost feel like I should be returning more stuff.

Yeah. I think I started this story maybe from the opposite part of the spectrum as you. I think I maybe return a little bit more than the average bear. Yeah, like way more. Dude, you are a shopaholic. You are surrounded right now with like outdoor gear that you probably are never going to use. I will admit to having, you know, impulse purchased an ultralight camping charcuterie board or whatever, knowing that I could, if I ever came to my senses, just return it if it was

still within a year. But over the course of reporting this story and actually, you know, going to this place and seeing these literal mountains of stuff that we're sending back all the time for almost no reason at all. A lot of which is just like eventually ending up in the landfill. It's kind of made me feel different about this whole system we've set up. There are costs, you know, and the reason it feels so free and easy to return stuff is because we've kind of hidden all of those costs. We've basically swept them under the rug, which reminds me, maybe I should get a robo vacuum. If you want more of that sweet, sweet Planet Money, you can sign up for our newsletter. Last week, our incredible intern, Corey Bridges, wrote about how Montreal became the Hollywood of video games. You can find that at npr.org slash planetmoneynewsletter.

Also, you can find us on social media. We're at planet Money Everywhere. And if there is some corner of the e-commerce economy you think we should check out, email us, planetmoneyatnpr.org. Today's show was produced by Dave Blanchard and Emma Peasley. It was mastered by Isaac Rodriguez and edited by Jess Jang. Planet Money's executive producer is Alex Goldmark. Special thanks to Mark Cohen, Zach Rogers, and Narayan Janikaraman. I'm Alexi Horowitz-Ghazi. I'm Nick Fountain. This is NPR.

Thanks for listening. Wait, wait, wait. One last thing. One last thing before we go. There was just this one moment from the Treasure Hunt bin megastore I wanted to share with you, Nick. Check this out. Ah, gotcha. That's an audio Rick roll. And a special thanks to our funder, the Alfred P. Sloan Foundation,

for helping to support this podcast.