How to Avoid Getting Stung by Amazon Returns

Paul Sonneveld
My name is Paul Sonneveld, your guide on this journey. And today, our topic of exploration is the Enigma of Amazon Returns within the context of Amazon Vendor. We'll be dissecting what they are, understanding their workings, and most crucially, discussing the methods to prevent or reduce them.

Now, I have asked Warren Coxall to come back on the show today and to lend a hand and share his invaluable experience and expertise to delve into this unique particular topic. Now, let me give you a really brief introduction to Warren. I'll bring him up here. Warren is the co-founder of Totalyty, an e-commerce agency based in Sydney with a specialized focus on Amazon. Totalyty transforms brands into Amazon triumphs, partnering with clients that operate both on the Vendor Central and Seller Central platforms. Warren, you've been on the show before, but it's absolutely great to have you back today. Thank you so much for, joining us. 

Warren Coxall
Yeah, good to be here. I'll have to change my background so that I can mix it up a little bit next time. 

Paul Sonneveld
As you can see, my background is very, very inspiring. It's a wide wall today. I keep, you know, intending to do something about it, but, you know, we'll get there at some point. So today we're talking about Amazon Returns. Before we even get there though, there's, returns sort of assume that you do have stock inside Amazon's warehouses and for a lot of vendors, even that is a struggle. You know, 

How do you get purchase orders raised and all of that? I mean, let's, so let's start there. You know, my first question really is, you know, how do vendors typically overcome the challenge of actually obtaining purchase orders in the first place? And what strategies do you use to, you know, improve that flow and process?

Warren Coxall
Yeah. Well, it is a great question. Because a lot of brands that come onto vendor expect that if they've got great products and they're selling at the right price, they'll be able to do a big, excel dump or use an EDI or API link to push their products onto Amazon. That those products will just sell, although they'll actually get purchase orders for those. But in reality, that's not the case. 

It's all about demand. Amazon is algorithmic. Their purchase sort of system works in that way. So to create demand, the way we do that, as an agency for brands, is we make sure that of course, they've got great imagery. But more importantly, we're looking at their titles, which is the most important real estate from an SEO perspective. 

We are looking at their bullet points. We're looking at their backend search terms. So we're sort of trying to jam pack all that stuff in there. So organically their products are going to come up, from a demand perspective and Amazon will start to trigger purchase orders. There are a few other little  hidden tricks of the trade that we can, deploy if, if required, but that's the main one that the brands can do themselves. 

Paul Sonneveld
Yeah, I see. And there is this concept, sort of that sits right between kind of purchase orders, inventory, and also a factor on returns, which is the minimum order quantity. And it feels like a very technical detailed question here, but it might just be worth pausing on, obviously, for those that don't understand minimum order quantities, what are they? But, and how do you think about that? How should vendors think about them in the context of their relationship with Amazon?

Warren Coxall
Yeah, it's look, it's really, it's important, it's highly critical. In other wholesale channels, you're probably more likely to be able to send huge volumes into those channels. But Amazon doesn't work that way. Their model is more around high volume, low quantity orders that come through weekly, sometimes more than that.

So setting up your MOQs, if you set them too low, then you'll get really low purchase orders. I saw one last week. It was a 26 cents purchase order that was being shipped from Sydney to Perth. So, you can imagine that the cost of that already, they've already lost and in that instance, I actually did recommend to that particular brand that they accept that purchase order funnily enough, because Amazon didn't have any stock and it was worthwhile being in stock so that we could then create some sell through and generate more demand moving forward, which we'll talk about. 

But then on the other end of the spectrum, some brands want their MOQs to be quite high. It could be one pallet, could be two pallets. Could be a lot more than that per product. And if that's the case, Amazon's algorithm will just say that's just way too much and they either will order less than your MOQ or they'll just not order it at all. Or if they do order it, you risk getting the majority of that coming back if you're unable to sell through that stock.

Paul Sonneveld
So really what you're saying is in the event that you are not getting purchase orders, and maybe you have optimized all the titles and know all the groundwork, it could well be that your MOQ is just set too high. That, you know, Amazon's just not feeling bullish enough to place that big order that, I don't know, 50, a hundred, whatever the MOQ is. So reducing your MOQ may help, you know, am I saying that correctly, Warren?
 
Warren Coxall
Yeah, absolutely. Nailed it. Yeah, I mean, you know, brands have their MOQs set there for a reason. But really to be successful on Amazon, you've got to really understand how their model works and think about perhaps reducing that MOQ so you can start to get high-volume orders, in lower quantities. And eventually, once you start to get some sales cadence, you might find that you're back up to that one or two pallets per product order each week. Yeah. 

Paul Sonneveld
Yeah. So let's talk about returns. 

Warren Coxall
Yeah. 

Paul Sonneveld
I'm just aware that there might be people tuning into this podcast who have traditionally interacted more on the seller side with Amazon or marketplaces. And therefore the word return has a different meaning to them. They may be thinking about a consumer return, you know, returning a product to Amazon FBA to your own warehouse. That's not what we're talking about here. Do you want to just explain, for the lay people mass, you know, Amazon returns in the context of being a vendor, what does that mean?

Warren Coxall
Yeah, sure. So, of course, you still get customer returns when you're selling on vendor or you know, if things are damaged in Amazon's warehouse, that stuff doesn't come back to you, as a vendor. So, what we are talking about is overstocked product returns. So that's where Amazon has created a series of purchase orders, you've accepted them. And you're unable to sell through that stock within a defined period, and Amazon will then start to return that to you. 

Essentially the way it works is Amazon puts a timestamp on your stock holding and they look at your sell through. And if they've got one unit more than what they're expecting to sell through based on your historical sales, then that one unit will get sent back to you or if it's two units, two units will get sent back to you. And so that can be, you might end up getting,  a large return, or you might start getting a series of smaller returns on a daily basis over a period of time. 

Paul Sonneveld
Thank you. Which gets us into the types of returns what are the different types or how would you classify them into different buckets, different scenarios?

Warren Coxall
Yeah, I think, well that's the main one. If I have a look at some of these here, customer returns and warehouse I sort of mentioned before. There are vendor-damaged returns or carrier-damaged returns. So, if you are sending in stock and Amazon's able to prove that that was already damaged before it was sent, then of course that will come back to you. And then again, if stock is damaged in transit, which does happen from time to time, that again is sent back to you. 

There are ways of disputing returns and I would always encourage vendors to do that if a particular return is outside of your agreement with Amazon or if it just doesn't make sense. And I've found actually that Amazon's pretty reasonable in accepting those disputes if it makes sense and you're proving the right documentation and such.

Paul Sonneveld
So let's, for argument's sake that you're sitting on a lot of excess in inventory, and that inventory is undamaged or you know, it's still fit for, for sale. I think if products is obviously damaged or, you know, not fit for sale, but that's a different category. But let's say the product you're just overstocked, the demand doesn't match the inventory. Of course, taking the stock back and bringing your truck around Amazon's warehouse or, you know, mechanically might work a little bit differently. But that's one option. But, you know, clearly not a preferred option. The preferred option is for the stock to stay there and to sell. So what levers do you pull as you work with your clients on some of these challenges? 

Warren Coxall
Yeah. Well, firstly, one of the things you can do and we encourage you to do this even with stock that isn't unhealthy, but is to participate in Amazon promotional periods because they're high-traffic periods that can help you to sell through your stock. But you can also put coupons and discounts against certain products that are falling into unhealthy status to help move those through. 

Equally from an advertising perspective, you can start pushing those products a little bit more heavily to ensure that they do sell through and you're reducing the amount of returns that you might receive. Depending on how much stock Amazon actually has, you might be more reducing how much it's going to come back to you as opposed to eliminating it. But certainly, promotions and advertising is a key feature, when it comes to reducing that coming back to you.

Paul Sonneveld
I see. I guess if you are a vendor that's been stung by excessive returns and it's not always easy just to take that stock and sell it somewhere else. Might be significant rework involved, clearly, there's transport costs and working capital and the like, you know, hit to P&Ls, and all of that. But some vendors may, you know, as new purchase orders come in, they start to get reluctant to accept new purchase orders, right? Or maybe not in this, in the right quantities, because they've been burned before.

Warren Coxall
Yeah. 

Paul Sonneveld
What advice do you have and how do you manage that balance in terms of accepting POs versus not doing it? Like what steer do you have for us today? 

Warren Coxall
Yeah, sure. Well, you can certainly go onto your Vendor Dashboard in the retail analytics section and have a look at your inventory and Amazon has some tools there that you can look at, which will tell you how much stock you've got in and also, you know, what's sort of heading towards 90 days within their fulfillment centers. And you can make some decisions around accepting purchase orders from there. 

And certainly, when new vendors come online and they get these big purchase orders from Amazon, they can tend to get quite excited by that and just blindly accept it. So it definitely comes down to your own ability to forecast. And, I always air on the caution of or on the side of being quite conservative around that. But for us, just to give you a bit of a plug here, Paul, we use MerchantSpring, your tool. And that allows us to not only understand what is in unhealthy inventory, but we can actually see, how many days cover that relates to based on our previous sales. 

And it's an excellent tool for us to have a look at. So every week, when Monday morning, 6:30 AM for most brands, the orders come in. We'll always go through and look at them line by line and have a look at how many days cover does that product have, and then we'll make our decisions based on that. It is always better to accept some of Amazon's purchase orders as opposed to completely rejecting it. But in some cases, they've got a lot of stock in their fulfillment centers, so it just makes sense to not accept that particular line item and then move on to the next. 

Paul Sonneveld
Yeah, and of course the devil's in the detail, right? Because, obviously to give Merchant Spring a plug here, but you know, this data's available through vendor Central as well if you know how to pull it out and do the right things with it. But, you know, it's always great to overstocks is never homogenous across different ASINs or SKUs, isn't it?

You're always overstocked over here and then you find that there's some other SKUs that are running really, really low plus the wire there. You know, and you want to make sure that you've got those purchases are still going in there as well. So like everything in e-commerce, you know, it's down to the detail. Like everything in retail, I should say, it's down to detail at a product level, right? 

Warren Coxall
And also being aware of the time of year that it is and, you know, you might have. You know, your sell-through might say that you've got an X amount of days cover, but you, you also might have Prime Day coming up, or Cyber Monday or some other event, that will stimulate sales for your particular brand. So you've got to just take all that into consideration when accepting, stock. Because the last thing you want to be doing is running out. 

Paul Sonneveld
Yeah, actually on that, I thought I'd throw maybe a curveball question here. Amazon for Vendors provides a forecast, you know, the P70, P80, P90. 

Warren Coxall
Yeah.

Paul Sonneveld
I've heard completely mixed perspectives on whether this information is useful, even looked at on both sides of the spectrum of wellness, where do you sit in that debate? Like, do you use that data? If so, how do you use it? 

Warren Coxall
Initially, we used to have a look at it. We tend not to really look at that data anymore. We use your tools, to be honest. And from a forecasting perspective, we work closely with the brands to understand well what is their sell through in other channels. This is when we're first starting. But once we've had at least 12 weeks' worth of sales, data, then we just tend to use MerchantSpring as our guide in helping us make those decisions. 

Paul Sonneveld
Another nice plug. Thanks, Warren. 

*both laughs*

Paul Sonneveld
This is a non-paid interview just to be clear to all of our listeners out there, but it's nice to get your feedback. Well, the final question from me before we wrap things up. I've heard of another stream fulfillment called direct fulfillment, which, you know, might negate some of these challenges and hassles around returns. Can you explain a little bit more about what direct fulfillment is? And how it works in particular, how it may be useful to both the vendor and Amazon themselves? 

Warren Coxall
Yeah. Well, it look, it doesn't suit everybody, because direct fulfillment, is what it says on the tin. A customer order will come through to you and your team will need to pick, pack and fulfill that order. So not all brands have the resources or want to do that. But if you are set up to be able to do that, it's an excellent initiative. It's been around for about 10 years, I think, around the globe, but not that long here in Australia, but it's starting to get a lot of momentum. 

And what it essentially allows you to do, particularly if you've got a lot of SKUs, I mean if you imagine if you've got 30,000 SKUs, and you're wanting to get them up on Amazon and available for sale to customers very fast, direct fulfillment can be a really great way to do that, and it de-risks it for you because you're not sending in minimum order quantities of 30,000 SKUs into Amazon's fulfillment centers. And then risking it all coming back to you. And of course, if that's. If it does come back to you and it's food, it could come back close to the expiry date or, you know, out of season and not sellable.

So it causes all sorts of problems and direct fulfillment can eliminate that. And it's also quite good in that you can opt to have only some of your products, listed as direct fulfillment and others can stay in Amazon's fulfillment centers. So you can put your highest-performing products in bulk into Amazon's fulfillment centers. And then for your test and learn products or for some of your other long tail products, they can be sitting there, they're available for sale. And then as you start to get more sales, you might then transition them on. 

Or, another scenario might be that your product is their fulfillment centers. And it runs out of stock. If you've got it as a hybrid product, then it will switch immediately to direct fulfillment. The customer doesn't see anything. They don't know whether it's sitting in a fulfillment center or its direct fulfillment. And equally, you get the prime badge as well, which means that, you know, customers can still leverage the fact that they're going to get fast, efficient, and, and free delivery.

Paul Sonneveld
That is a great plus. It's like being a seller and shipping from your own warehouse and still being part of Prime. Right. That's a really good, good option in terms of that. Now I do have a follow-up question there, which is, I'm sure Amazon expects strong shipping performance. In other words, they wouldn't want the user's experience to deteriorate just because now they're allowing that last mile or at least the fulfillment, for the vendors to do themselves. And this is, I think probably a topic we could go much deeper on a separate show, but just kind of in terms of the headlines, If I am a vendor, maybe I'm just supplying to Amazon's warehouse. I like this concept of direct fulfillment. But what's the report card I need to deliver for Amazon when it comes to shipping products on time? 

Warren Coxall
Yeah, sure. Well, before, before I answer that, one thing I forgot to mention as well is that there is no additional cost to vendors to leverage that program either. So, not only are you not paying additional fees in sending that product to the consumer, but you're actually in some cases saving costs by not paying carriers to send the stock into their fulfillment centers. So, it can be a bit of a win on that side of things for you. 

But from a scorecard perspective, the responsibility is very much on you, the vendor to be providing daily updates. And it only takes a couple of minutes to essentially tell Amazon that you have got X amount of products and this is how many units you've got in stock, and you do that every day. And then Amazon takes that as the truth and then allows customers to be purchasing those. 

Now if you say that something's available and a customer orders it and then you say, oh, hang on, sorry, that wasn't available. I think Amazon will take that as being, okay, well, you've done it once. It's a mistake. If you do that a second time or a third time, I guess you're going to be, potentially looking down, having your account suspended. So, they take it very seriously. It reflects poorly on Amazon. It reflects poorly on your brand. So, they definitely want you to be running an efficient show if you are going to take on the responsibility of fulfilling it yourself. 

Paul Sonneveld
Yeah, that sounds like Amazon. They certainly expect a higher level of performance that maybe some of us are used to or would like to deliver to. But nevertheless, I think a very interesting alternative, particularly for those vendors that have already an existing, you know, D2C fulfillment option, available in-house. 

Of course, many of them don't. But if you do have that, I think it could do wonders, could really help. In fact, one may argue you should try to negotiate, you know, an increased cost price because you are Amazon is saving on their working capital and all of that, not store it in their own warehouse, which is very, very interesting.

Wow. That is, that is really fantastic. We're about to wrap up, but I just had a question pop up in here. And I'm just going to bring it on. Maybe it's keen to sort of get your perspectives on it, Warren. And then, then we'll wrap up, today. So let me just bring it in. Here we go. So just asking for some advice around, where is the best place to learn more about product returns? I'm new to Vendor Central and my manager wants me to manage returns, chargebacks, and shortages. Those three terms are big, big projects by themselves. But, yeah. Any advice on, you know, the best places to start?

Warren Coxall
Yeah. Yeah, well, first and foremost, you can just go into Amazon Vendor Central help and search the topics that you're looking for, and there'll be a whole bunch of information and tutorials that you can look at. So that's where Amazon will direct you first and foremost. If that doesn't help, you can set up a case and ask any questions directly to Amazon and they'll come back and, and explain what you can do about that. 

Secondly, you know, the topics that you just mentioned there or you that you just asked there, there's a whole industry that's been built around helping sellers and vendors manage shortages and reimbursements and things like that. So it's really detailed and it's big business out there. And there are certain tech plugins you can put into your account to help you with these things. But equally, you know, a plug for ourselves, at totalyty. I mean, as a full-service agency, that's also what we do to help you. So feel free to reach out to us at totalyty.com and we'll be able to offer you a hand as well in terms of how to navigate it.

Paul Sonneveld
That was a great segue. I usually ask at the end of each episode how to get a hold of you and get in touch with you, but, you've answered, that one already. I also just going to point out that, if you go to our YouTube channel, just look for MerchantSpring. There's a playlist there that has all of our Amazon vendor content.

We've done, we have done a couple of episodes specifically on chargebacks, shortages, and also some of the operational processes and SOPs that sit around that. So feel free to check those out as well.  With that, let's wrap it up here, Warren. Thank you again for jumping on, today. Actually, for those of you who haven't realized yet, today's episode was specifically focused, on vendors in Australia.

You know, we haven't really served that community, well yet. So, you know, Warren, thank you for helping us take the lead on that and really educating the community out here in Australia who, you know, a little bit newer to this whole Amazon vendor game than some of their counterparts in Europe and in the US. So thank you for your generosity and making yourself available and I look forward to doing another session in the near future. 

Warren Coxall
Sounds good. Absolute pleasure. All right, we'll see you next time. 

Paul Sonneveld
Bye. All right, well, that is it for today's episode of Marketplace Masters. Feel free to stay in touch. Look forward to some of the episodes that are coming up. And you know, feel free to, as I said before, check out our YouTube channel. We probably have something over like 30 or 40 different episodes now focused specifically on Amazon Vendor content. So please go and check it out. And until next time, take care.