Amazon has quietly begun charging some customers for making UPS returns. Customers who live closer to an Amazon Fresh, Kohl’s, or Whole Foods location — but who choose to return their purchases via UPS anyway — may now have to pay a $1 fee for each return.
The move comes as Amazon works to cope with slowing growth following the pandemic. But it could also signal bigger changes, like a shift away from free returns across the e-commerce ecosystem.
Given the ever-rising price of doing business with Amazon and the costs and complications of accepting returns, you may be wondering what this new return fee could mean for your growing e-commerce business.
Could it lead to fewer returns and a little less headache? Or will it discourage some of your customers from buying? Could this result in new costs or fees for sellers?
Let’s take a closer look at how this change could impact your business and some potential ways to turn that $1 fee into an opportunity for increased growth.
Amazon’s New UPS Returns Charge
- What’s New with Amazon’s Return Policy?
- How Are Free Returns Changing?
- Why Would Amazon Start Charging for UPS Returns?
- What Does This Move Mean for Sellers?
What’s New with Amazon’s Returns Policy?
The fee only applies if the customer’s shipping address is within the same distance or closer to an Amazon Fresh, Whole Foods, or Kohl’s location — all of which accept returns for free. If UPS is the closest option for the customer, returns made there do not incur a charge.
Previously, Amazon offered free returns at most UPS Stores. Some customers could even schedule free UPS pickups at their homes. Last year, Amazon began tacking on a $7.99 fee for at-home UPS pickups, but customers could still drop their returns at UPS store locations for free.
How Are Free Returns Changing?
For years, Amazon has been setting the industry standard for free returns, sending return labels and boxes to customers’ homes, and offering label-free and box-free returns at thousands of dropoff locations throughout the US.
Initially, the company only offered free returns on bedding, apparel, and clothing. But in 2019, Amazon expanded its free returns policy to include millions of items across categories including electronics, pet supplies, household items, and kitchen appliances.
Major retailers followed suit and it wasn’t long before free returns became business as usual in the world of e-commerce. The rate of returns has skyrocketed in recent years, with customers returning $218 billion in merchandise in 2021 — more than double the amount returned in 2020.
Faced with rising costs and an adjustment in post-pandemic demand, many retailers have started to walk back their free returns policies. REI and Zara are now charging for most returns that aren’t made in-store. Brands like H&M, Abercrombie & Fitch, and JCPenney have begun charging up to $8 for return shipping.
Why Would Amazon Start Charging for UPS Returns?
Fortifying Its Logistics Empire
For years, Amazon has been working to build out its logistics and transportation capabilities and reduce its reliance on third-party shipping partners like FedEx and UPS.
Since the 2013 holiday season, when UPS got between Amazon customers and their loved ones’ Christmas gifts, the e-commerce giant has been investing heavily in every kind of transportation infrastructure, from cargo planes to big rigs and last-mile delivery vans.
In 2018, Amazon announced the launch of Shipping with Amazon (SWA), its own delivery service for businesses. A year later in 2019, FedEx severed ties with Amazon, shortly before Amazon usurped its third-place share of the US shipping market.
Amazon now lags behind only UPS and USPS for parcel delivery volume in the US and could be on track to overtake UPS in the coming years. In 2019, David Abney, CEO of UPS at the time, finally admitted to Business Insider that, “We monitor [Amazon] as if they were a competitor.”
The $1 charge on returns could be a move to wrest even more of the market share from UPS. But there are still many cases where Amazon relies on UPS to reduce costs and fill gaps in its infrastructure. For the time being, an intense rivalry may not be in either company’s best interests.
Covering the Real Cost of Amazon Returns
Returns are expensive. In 2021, the NRF reported that a record $761 billion in merchandise had been returned to US retailers. That’s about $20 billion more than the National Defense budget for the same year.
There’s no publicly available figure for exactly what Amazon spends on returns, but with the company’s sales accounting for nearly 40% of national e-commerce business, and the typical return costing retailers somewhere between 21% of the order value and 66% of the product price, depending on who you ask, it’s safe to say Amazon’s return costs are enormous.
Maybe the question shouldn’t be “Why is Amazon charging for returns?” but instead, “Why so little, and why so late?”
A dollar might seem like a small number for Amazon and a small price to pay to avoid a busy Whole Foods parking lot on a Saturday. But that number, multiplied by billions of returns, could provide a big profit boost for Amazon, helping it battle shareholder concerns about slowing post-pandemic revenue.
The new $1 charge could also be a boiling frog experiment, with Amazon gradually upping the price, or charging at other locations, over time as customers adjust to paying for returns.
Adapting to Slowing Demand
Amazon has been making other changes to adapt to (possibly unwarranted) fears around dwindling demand. The company laid off about 18,000 workers in January 2023, and another 9,000 beginning in March, before reporting 9% YoY growth in April. It has also closed, canceled, or delayed the opening of nearly 100 US warehouse facilities.
Encouraging customers to make their returns at Whole Foods and Amazon Fresh could also be a smart way for Amazon to increase sales and capitalize on its relatively small brick-and-mortar footprint. The company may be looking for ways to turn all those returns into valuable in-store traffic.
What Does This Move Mean for Sellers?
There’s much speculation that this fee, along with other recent changes in e-commerce return policies, could signal the end of free returns.
This would mean a massive shift in the culture of online shopping, with free returns becoming a privilege rather than an expectation. Such a shift would have far-reaching impacts on both retailers and consumers.
How Could Buyer Behavior Change?
Since the fee is only $1, its immediate impact on buyer behavior may be insignificant.
As Omni Talk hosts Chris Walton and Anne Mezzenga point out a $1 fee doesn’t create enough friction to dissuade the average loyal Amazon customer from returning their items at UPS if they consider it more convenient. Since Whole Foods, Amazon Fresh — and to some extent, Kohl’s — tend to be located in higher-income areas, the policy primarily targets shoppers who may not even register the change.
But the change may nudge other customers to rethink where they make their purchases in the first place. Retailers like Walmart and Target have a greater in-store footprint, generally less-daunting parking lots, and still offer free in-store returns. The demographic that really wants to save that last buck may shift their online shopping habits accordingly.
The new fee feels like part of a broader push by Amazon to reframe returns as a last resort. The company has also begun flagging certain products on the platform as “frequently returned items.” Sellers with high return rates could start to see their sales and reputations plummet, as buyers retrain themselves to purchase only products they feel confident about.
How Could This Impact My Amazon Health Rating (AHR)?
It’s important to note that new return fees could affect your AHR.
Here are some details to pay attention to as return policies change:
- Product Listings: Without free returns, customers will be more hesitant to buy and more likely to complain if they’re not satisfied. You’ll need hyper-accurate and up-to-date product listings to keep your AHR out of the red zone.
- Order Defect Rate (ODR): Be wary of customers claiming other reasons for their returns, for example, that their merchandise is defective, in order to get around paying the fee. Your ODR could increase even if your products are in perfect condition, as fraudsters or penny-pinchers look for ways to cheat the new system.
- Changes in Order Size and Volume: If your product is prone to bracketing or wardrobing, like apparel or jewelry, you could see your sales income go down as customers choose to buy in just one size instead of various, or not buy at all. But your return rate should also go down, keeping your AHR relatively stable.
- Customer Apathy: Some customers who would otherwise make a return might just decide to keep the product to avoid inconvenience — especially if the fee is a relatively high percentage of the total item cost. This could mean a boost in your AHR in the short term, but these customers might drive down your reputation with negative reviews.
- Return Dissatisfaction Rate (RDR): Your RDR could go up if customers feel frustrated about having to pay, even when it’s not your fault.
How Can My Business Stay Competitive Without Free Amazon Returns?
To stay resilient, focus your efforts on these four areas:
- Diversify Your Online Sales: If your product caters to customers with a lower disposable income, it could be time to start selling on the Walmart and Target marketplaces, amping up sales on your Shopify site, or looking at other ways to appeal to prospects who don’t want to pay an extra return fee or shipping charge.
- Fine-Tune Your Product Listings: This bears repeating. You’ll need to invest heavily in giving customers exactly what they expect. Keep a close eye on your product listings to ensure they’re as transparent and accurate as possible, with clear photos and detailed sizing information. Look closely at customer feedback and modify your listings — or even your actual product, if necessary.
- Perfect Your Customer Service: Your business will need to be prepared to field more questions prior to purchase — and possibly more grievances after the fact. Consider staffing your phones and email inboxes with extra customer service reps, or retraining reps to offer an even better customer experience.
- Invest in New Technologies: If you’re in apparel, beauty, or decor, consider offering virtual try-on or 3D floor-planning. While you aren’t allowed to use your Amazon product listing to direct customers to off-platform virtual experiences, you could offer this feature on your site or on your social media before directing them to your Amazon listing to buy.
Many Happy Returns, with SellersFi
However you choose to prepare for this change, or any other shifts that could be on the horizon, you’ll need to arm yourself with the right resources.
Whether it’s investing in updated product listings or expanding into completely new marketplaces, you need a financial partner that knows how quickly things can change.
At SellersFi, our financial solutions were custom-built to help you ride the waves of change. Learn more about how we work or explore our latest Amazon resources to stay one step ahead. Or, if you’re ready to get started growing your Amazon business (or other e-commerce operations), register for a free SellersFi account and see what funding can do for you.