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Amazon Destroys Millions of Dollars in Unsold Products

Amazon está destruyendo

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Amazon is destroying millions of dollars worth of unsold products: from face masks to iPhones, the retail giant gets rid of thousands of products – on a weekly basis – that have not left its inventories in time to make room for next season’s merchandise.

The news became public after a video was leaked on June 21 at an Amazon warehouse in Dunfermline, Scotland, where a former employee showed how hundreds of products were marked with the word “destroy.” He claimed that up to 50% of the products were never opened and the other half were returns, mostly in good condition.

According to the informant at the Dunfermline plant, the goal was to destroy up to 130,000 items a week. The products were packed into trucks to be destroyed and then taken to Amazon’s local waste center, but a good portion of the destroyed items ended up in the city’s landfill.

The situation has caused outrage in the community who have vehemently called on Amazon to stop destroying thousands of good quality products. The #amazonwaste has become popular on networks such as Twitter. The environmental NGO, Greenpeace requested an explanation from Bezos about the disposal of thousands of products in the UK.

It is disconcerting to see a multinational company like Amazon destroying millions of products in perfect condition every week. Isn’t it easier for the retail giant to sell the product?

Why is Amazon destroying millions of dollars worth of merchandise?

The practice of destroying millions of dollars worth of merchandise seems rather pointless and even morally reprehensible, especially at a time when the world has begun to worry about the environmental footprint of economic activity.

However, destroying products has a certain logic for Amazon. With the pandemic, online shopping skyrocketed, naturally benefiting Amazon, already the largest online retailer in the United States.

With the growth in demand, Amazon must have a greater number of products in inventory, more inventory takes up a bigger warehouse space, but unfortunately Amazon cannot build warehouses as fast as its demand grows.

Amazon has little space in its warehouses and an excess of inventory that often fails to ship. (Image: EFE)

Amazon has had to resort to different strategies such as not collecting returns from its customers, or asking retailers – who use its platform – to store their products in warehouses other than the company’s own; however, the giant’s warehouses are still unable to keep up with demand.

Added to this is the additional cost of the thousands of small retailers that use Amazon and its warehouses as a platform to sell their products, which may have a very good inventory turnover or none at all. These third parties deprive Amazon of the space the company needs to sell its own products, thus driving up warehousing costs.

Many of the products offered on Amazon are seasonal, or non-durable goods, so in a few months’ time they may not be in demand. Why not sell them cheaper?

As one of the largest retail companies in the world, it is almost impossible for Amazon to price discriminate, that is, to sell old or used products at cheaper or more expensive prices depending on the logistical costs or the population’s ability to pay.

If Amazon were to try to price discriminate, its customers would soon catch on and start demanding the lower prices, so Amazon would soon have to lower all of its prices, even risking selling much of this merchandise at a loss.

Amazon’s demand is growing much faster than its capacity to build new warehouses. (Image: EFE)

The other problem with lowering prices is the retailers themselves who use Amazon’s platform to set up their online business. Amazon has been accused in the past of engaging in practices that disadvantage retailers – who use its platform – by insider trading and by artificially undercutting the competition with artificially low prices.

In other words, a price decrease – to get out of stock that has not yet been sold – could bring Amazon future lawsuits and antitrust investigations to protect the interests of small retailers.

The practice of destroying inventory is not new: companies such as Blackberry, Urban Outfitters, H&M, Nike, Michael Kors and Victoria’s Secret have in the past been accused of engaging in these practices to get out of inventory. In fact, as a Business Insider investigation revealed, watchmaker Richemont – the company behind Cartier and Montblanc – destroyed more than $500 million worth of watches to prevent them from falling into the hands of resellers.

If Amazon were to auction off some of its inventory – unsold or returned – this auction volume would not be enough to cover all the inventory that went unsold.

Consequently, as outrageous as the destruction of perfectly good products may be, Amazon is moving out of merchandise because it makes more economic sense to vacate space in its precious warehouses than to wait for old products to sell and new ones can’t get in.

Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica

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