Amazon’s return policies are presenting difficulties for small businesses using its platform.

Sellers have reported an increase in return fraud and operational challenges, prompting some to reconsider their participation in the Fulfillment by Amazon (FBA) program.

Fraudulent returns have resulted in customers receiving used or damaged products.

Rachelle Baron, owner of Beau and Belle Littles, noted that her business was affected when Amazon mistakenly shipped soiled swim diapers to customers.

The National Retail Federation estimated that nearly 14% of US retail returns in 2024 were fraudulent, costing businesses around US$890 billion.

In response, Amazon introduced a new fee in June 2024 for sellers with high return rates.

The company has also added warning labels to frequently returned items.

🔗 Source: CNBC

🧠 Food for thought

1️⃣ Returns have become a massive economic burden across retail

The $890 billion cost of returns in 2024 represents a systemic challenge beyond just Amazon, affecting the entire retail industry 1.

This financial burden has triggered a significant shift in retailer approaches, with two-thirds of retailers now charging for returns and 59% implementing “keep it” policies for low-value items to avoid processing costs 2.

The average e-commerce return rate of 16.9% (rising to 30% in certain categories) creates thin margins that particularly squeeze small businesses without the scale to absorb these costs 1.

What’s happening on Amazon reflects broader industry economics where the cost to process a return ranges from 20% to 65% of an item’s original value, explaining why many returned items end up destroyed rather than resold 1.

This helps explain why an Amazon seller like Lorie Corlett runs at just 1% net profit despite selling successfully. The margin erosion from returns is an industry-wide phenomenon, not just a platform-specific issue.

2️⃣ Return fraud has evolved from minor nuisance to major threat

Recent Amazon developments