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.