Amazon return policies

Today, I learned something new about Amazon return policies. As a Prime subscriber, I used to think that regardless of the reason behind the returns, they would always be free. I was wrong.

As I had to return some items that I didn’t like and there was no fault on Amazon or the manufacturers’ part, I was presented with esentiall two options: drive to UPS or Kohl’s store to drop off for free or pay to have the items picked up. Below are the screenshots when I choose the reason as “Bought by Mistake” or “No longer needed”

Had I chosen something that indicated the return wasn’t my fault, the options would be different

I guess it is sensible and smart of Amazon to implement this control. Otherwise, there would be abuses from customers (myself very likely, I have to admit) and the logistics costs would be even higher than what they are nowadays.

On a side note, the return experience I had at Kohl’s was very smooth. You can actually return Amazon items at any Kohl’s nationwide and all that it takes is QA code which can be stored and shown via your phone.

It made me think: how does this partnership benefit Amazon and Kohl’s? I am speculating here, but I guess this option makes sense financially for Amazon as they piggyback on the scale of Kohl’s logistics or business with shipping partners like USPS, UPS or FedEx. Instead of 100,000 items delivered a month, I imagine the deal with Amazon would bump the number up for Kohl’s. The increased volume can give them the leverage to negotiate a lower unite rate and have Amazon share the extra cost. From Amazon side, it would be cheaper to share with Kohl’s than to handle the entire costs alone.

Additionally, customers are given another option. I can imagine in some cases it would be more convenient to drop items off at Kohl’s stores than packaging and labeling the items.

On Kohl’s side, they might be banking on the fact that as customers have to come in their stores to return items, it will increase impulsive purchase in the stores.

Amazon pays to play

A few days ago, Amazon reported its rare earnings miss, particularly on the bottom line. The primary reasons of the miss were their investments in AWS and especially their one-day delivery.

“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Jeff Bezos, Amazon founder and CEO. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”

Source: Amazon

A few days later, they announced the removal of groceries delivery fees for Prime members.

While their figures missed expectations, I think they are doing the right thing. Amazon has long been about long term investments and commitment to customer satisfaction. Two-day shipping wasn’t popular until it was introduced by Amazon. It was adopted by other retailers which wanted to compete. Now, Amazon upped their game and took it to another level with one-day shipping and free grocery shipping for Prime members. They are here to play and have the means to. With their AWS making up 62% of the whole company’s operating income and free cash flow up 54% YoY, Amazon has the luxury to make long-term investments to continuously being competitive.

I understand that in some cases, Amazon came across as a bully and deserved some of the backlash. Nonetheless, I think they earned their competitive position. Kobe Bryant spent hours in the gym and took thousands of shots to get to where he was in the record book. Amazon is willing to pay to stay competitive. The question is whether other companies respond accordingly and when.

Weekly readings – 19th October 2019

Amazon published their official position on a few social issues

Global electric car sales and market share, 2013-18

Source: IEA

The poor in America pay a higher tax rate than the rich. I guess the tax cut is doing what it is supposed to? (I am being sarcastic)

TurboTax’s decade-long war to prevent Americans from filing taxes online for free. I was angry when I read this article. Billions of hours and dollars are wasted every year on filing taxes and only a handful of people benefit at the expense of millions

To buy a phone in China, a face scan will be required as of 1st December 2019

Bob Iger’s massive bet on Disney’s future.

Sleep Deprivation Shuts Down Production of Essential Brain Proteins. The sleep deprivation pandemic is real in our society and there doesn’t seem to be signs of its abating.

How Amazon is redefining the expensive and wasteful process of returns

Boeing lead pilot warned about flight-control system tied to 737 Max crashes, then told regulators to delete it from manuals. Frankly, this is just disgusting. Boeing is one of the two plane manufacturers that dominate the sky and it still has this kind of behavior

Weekly readings – 5th October 2019

Grab Accounts for 73% of Ride-Share Trips in First Half of 2019 in Vietnam.

Retailer Adoption of Apple Pay Quickens. Since I was able to use Apple Pay on my phone, I have been using it as the first payment method, even in a city as small as Omaha. I have been a pretty happy user ever since.

Source: Loup Ventures

Comparison of smart digital assistants by Loup Ventures

Meet the Women Leading Netflix Into the Streaming Wars

The man who built his own Lamborghini

Dog-walking startup Wag raised $300 million to unleash growth. Then things got messy. SoftBank doesn’t seem to be the Midas that some hyped it to be with its massive checkbook, does it?

Latest memo from Howard Marks: On the Other Hand

Researchers Discover the Tallest Known Tree in the Amazon

Measuring Apple’s Content Distribution Arm

WeWork Used These Documents To Convince Investors It’s Worth Billions. A long but good article on the accounting jujitsu that WeWork employed

Are money-losing companies similar to Amazon?

A bullish argument for money-losing companies (companies that have negative operating income) I have seen so far is that they are following the footsteps of Amazon in the early 2000s before the juggernaut became what it is today. Set aside the differences in business environments, the nature of industries and technological advances, there is one important caveat; even though Amazon reported negative net income for a few years before turning profitable, it had POSITIVE free cash flow during that time.

Per corporatefinanceinstitute, Free Cash Flow (FCF) “represents the amount of cash generated by a business, after accounting for reinvestment in non-current capital assets by the company”. It’s equal to, simply speaking, cash generated from operations minus Capital Expenditure (CAPEX). It is a metric to show investors how efficient a company is generating cash and whether the company at hand has enough to pay investors after operational needs and capital expenditures.

This is what Amazon’s annual and quarterly free cash flow looks like over the years. Data is from macrotrends:

Over the years, free cash flow noticeably grew bigger for Amazon, but it was positive even before the introduction of AWS in 2006, which has been the margin maker for Amazon recently. Hence, if a company has negative operating income and still makes capital expenditures to grow, they are NOT similar to Amazon.

A particularly intriguing case is Netflix. The streaming king debuted its streaming service in 2007 and has grown to become the de facto leader in the market. It has had positive operating income, but increasingly invested a massive amount of money in original content, much more than the cash it generates from operations every year.

Since Q3 2014, Netflix hasn’t had a single quarter with positive FCF. The challenge Netflix is facing compared to its competitors is that Netflix has only one source of revenue. Disney, Amazon and Apple, to name just three competitors, have different sources of income. In the case of Amazon and Apple, their streaming services can be argued to be add-on services that function to lock in customers. It is true that given its almost 150 million subscribers, Netflix can spread its content costs across more subscribers than its competitors. Nonetheless, it has to keep investing every year in original content to appeal to consumers. If there is no change in how Netflix can generate revenue besides subscription, I struggle to see how its FCF outlook will differ. Hence, Netflix’s story is NOT similar to Amazon’s in the early 2000s.

Weekly readings – 21st September 2019

How Photos of a Remote School Went Viral, and the Happy Ending That Followed. A beautiful story that makes me appreciate what I have more

The Sun Is Stranger Than Astrophysicists Imagined

A Brief Primer of Asia’s Mid-Autumn Mythology in 3 Folk Tales. Ever heard of Mid Autumn season in Asia? This article offers a great primer on one of the most popular events Asians, especially Southeast Asians, celebrate.

Remarkable story about small Vietnamese community and its transformation

USC Law Commencement Speech. An honest and insightful commencement speech by Charlie Munger

Creativity Is the New Productivity

China’s second largest e-commerce site J.D.com Experienced a 480% leap in iPhone Preorders over Last Year

NPR Shopping Cart Economics: How Prices Changed At A Walmart In 1 Year

Amazon Changed Search Algorithm in Ways That Boost Its Own Products. The change in algorithm goes against the ‘customer-centric’ philosophy that Amazon is known for

The Cost of a Mile

Raising Prices is Hard

What Really Brought Down the Boeing 737 Max? A super long and doozy read on 737 Max, but boy, is it good!

Vietnam Becomes a Victim of Its Own Success in Trade War. As a Vietnamese, I am no stranger to the terrible infrastructure in my country. That’s why I haven’t been bullish on our chance at benefiting from China’s tariff war with the US

Silent Skies: Billions of North American Birds Have Vanished

Netflix: how will the story end?