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Stocks making the biggest moves premarket: McDonald’s, UPS and more

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Check out the companies making headlines before the bell.

McDonald’s — Shares dipped more than 1% after McDonald’s reported its latest quarterly results. The fast food giant topped earnings and revenue estimates, saying customers are increasingly visiting its restaurants. Still, McDonald’s CEO Chris Kempczinski said he expects “short-term inflationary pressures to continue in 2023.”

General Motors — Shares of the automaker rose more than 5% in premarket trading after GM beat estimates on the top and bottom lines for its fourth quarter, even as its profit margin narrowed. The company reported an adjusted $2.12 per share on $43.11 billion in revenue. Analysts surveyed by Refinitiv were looking for $1.69 in earnings per share on $40.65 billion in revenue. GM said it expected earnings to fall in 2023, but guidance was still above analyst estimates.

Ford — Shares of Ford rose 2% after the company announced Monday it would lower the price of the Mach-E, its electric pickup truck. The company reports earnings later in the week.

United Parcel Service – Shares of UPS rose 1.9% after the company reported earnings that beat analyst expectations. The company posted adjusted earnings per share of $3.62 on $27.08 billion in revenue. Analysts had forecast earnings of $3.59 per share and $28.09 billion in revenue, per Refinitiv.

Exxon Mobil — The oil giant was under pressure despite reporting upbeat financial results for the latest quarter. The company, whose stock price rallied more than 80% last year, saw a tightening in supplies as economies began recovering, CEO Darren Woods said in a statement. Shares fell more than 1%.

Caterpillar — Caterpillar shares fell more than 2% after the industrial giant posted a disappointing quarterly profit. The company reported earnings of $3.86 per share, well below a Refinitiv consensus estimate of $4.06 per share. Caterpillar said its bottom line was impacted by an “unfavorable ME&T foreign currency impact in other income (expense) of $0.41 per share.”

Pfizer – Shares of the vaccine maker fell more than 2% after the company reported mixed quarterly results and issued earnings and revenue guidance for the full year that came in below analysts’ expectations, according to StreetAccount. Pfizer said it expects revenues from its Comirnaty and Paxlovid drugs to fall 64% and 58%, respectively, from actual 2022 results.

International Paper – The packaging and paper products company reported fourth-quarter adjusted operating earnings of 87 cents per diluted share, exceeding StreetAccount’s estimate of 69 cents per diluted share. However, the company reported a net earnings loss of $318 million for the quarter. International Paper nearly 6% in the premarket.

Lucid – Shares of Lucid slipped 4.4%, further cooling off after a monster options fueled rally on Friday.

PulteGroup – Shares of the homebuilder rose more than 1% in premarket trading after PulteGroup reported a better-than-expected fourth quarter. The company reported $3.63 in adjusted earnings per share on $5.17 billion of revenue. Wall Street analysts were expected $2.93 in earnings per share on $4.58 billion of revenue, according to StreetAccount. PulteGroup’s homebuilding gross margin rose year over year.

— CNBC’s Fred Imbert, Jesse Pound, Tanaya Macheel, Sarah Min, Carmen Reinicke and Michelle Fox contributed reporting

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What it’s like to deliver for Amazon in new Rivian electric vans

For the 275,000 Amazon drivers dropping off 10 million packages a day around the world, the job can be a grind. But a lot has changed since drivers in 2021 told CNBC about unrealistic workloads, peeing in bottles, dog bites and error-prone routing software.

Among the biggest developments is the arrival of a brand-new electric van from Rivian.

Amazon was a big and early investor in the electric vehicle company, which went public in late 2021 with a plan to build trucks and SUVs for consumers and delivery vans for businesses. Since July, Amazon has rolled out more than 1,000 new Rivian vans, which are now making deliveries in more than 100 U.S. cities, including Baltimore, Chicago, Las Vegas, Nashville, New York City and Austin, Texas.

The partnership began in 2019, when Amazon founder and ex-CEO Jeff Bezos announced Amazon had purchased 100,000 electric vans from Rivian as one step toward his company’s ambitious promise of reaching net-zero carbon emissions by 2040.

″[We] will have prototypes on the road next year, but 100,000 deployed by 2024,” Bezos said at the National Press Club in Washington, D.C., in September 2019. Amazon has since revised the timeline, saying it expects all 100,000 Rivian vans on the road by 2030.

Rivian has faced several challenges in recent months. It cut back 2022 production amid supply chain and assembly line issues. Its stock price dropped so sharply last year that Amazon recorded a combined $11.5 billion markdown on its holdings in the first two quarters.

CNBC talked to drivers to see what’s changed with the driving experience. We also went to Amazon’s Delivering the Future event in Boston in November for a look at the technology designed to maximize safety and efficiency for delivery personnel.

For now, most Amazon drivers are still in about 110,000 gas-powered vans — primarily Ford Transits, Mercedes-Benz Sprinters and Ram ProMasters. Amazon wouldn’t share how it determines which of its 3,500 third-party delivery firms, or delivery service partners (DSPs), are receiving Rivian vans first. 

The e-commerce giant has been using DSPs to deliver its packages since 2018, allowing the company to reduce its reliance on UPS and the U.S. Postal Service for the so-called last mile, the most expensive portion of the delivery journey. The DSP, which works exclusively with Amazon, employs the drivers and is responsible for the liabilities of the road, vehicle maintenance, and the costs of hiring, benefits and overtime pay.

Amazon leases the vans to DSP owners at a discount. The company covers the fuel for gas-powered vans and installs charging stations for electric vehicles.

The company says DSP owners have generated $26 billion in revenue and now operate in 15 countries, including Saudi Arabia, India, Brazil, Canada, and all over Europe. 

What drivers think

In the early days of testing the Rivian vans, some drivers voiced concerns about range. An Amazon spokesperson told CNBC the vans can travel up to 150 miles on a single charge, which is typically plenty of power for a full shift and allows drivers to recharge the vehicle overnight.

As for maintenance, Amazon says that takes place at Rivian service centers near delivery stations or by a Rivian mobile service team, depending on location.

Julietta Dennis launched a DSP, Kangaroo Direct, in Baltimore three years ago. She employs about 75 drivers and leases more than 50 vans from Amazon. She now has 15 Rivian vehicles.

“It’s very easy to get in and out with all of the different handles to hold on to,” Dennis said. She said that some drivers were hesitant at first because the vehicles were so new and different, “but the moment they get in there and have their first experience, that’s the van that they want to drive.”

Baltimore DSP owner Julieta Dennis shows off a Rivian electric van at Amazon’s Delivering the Future event in Boston, Maryland, on November 10, 2022.

Erin Black

Brandi Monroe has been delivering for Kangaroo Direct for two years. She pointed to features on a Rivian van that are upgrades over what she’s driven in the past. There’s a large non-slip step at the back, a hand cart for helping with heavy packages and extra space for standing and walking in the cargo area.

“We have two shelves on both sides to allow for more space,” Monroe said, adding that she’d prefer to drive a Rivian for every shift. “And then the lights at the top: very innovative to help us see the packages and address a lot easier, especially at nighttime.”

There’s even a heated steering wheel.

Former driver B.J. Natividad, who goes by Avionyx on YouTube, says his non-electric van could get very cramped.

“I remember one time I had 23 or 24 bags and over 40 oversize packages and I had to be able to figure out how to stuff that all in there within the 15 minutes that they give us to load up in the morning,” said Natividad, who now works for USPS.

The Rivian vans have at least 100 more cubic feet than the Sprinter and up to double the cargo space of the Ford Transit vans Natividad drove in Las Vegas. Rivian vans are still small enough that they don’t require a special license to drive, though Amazon provides its own training for drivers.

One driver in Seattle, who asked to remain unnamed, was especially excited about the new Rivian vans. He offered an extensive tour of the new driving experience on his YouTube channel called Friday Adventure Club.

He said one of his favorite features is a light bar “that goes all the way around the back.” He also likes that the windshield is “absolutely massive,” the wide doors allow for easy entry and exit, and the cargo door automatically opens when the van is parked. There are two rows of shelves that fold up and down in the cargo area.

There’s also new technology, such as an embedded tablet with the driving route and a 360-degree view that shows all sides of the van.

Mai Le, Amazon’s vice president of Last Mile, oversaw the testing of the center console and Rivian’s integrated software.

“We did a lot of deliveries as a test,” Le said. “As a woman, I want to make sure that the seats are comfortable for me and that my legs can reach the pedals, I can see over the steering wheel.”

She demonstrated some of the benefits of the new technology.

“When we start to notice that you’re slowing down, that means that we can tell you’re getting near to your destination,” she said. “The map begins to zoom in, so you begin to find where’s your delivery location, which building and where parking could be.”

The new vans have keyless entry. They automatically lock when the driver is 15 feet away and unlock as the driver approaches. 

Workers load packages into Amazon Rivian Electric trucks at an Amazon facility in Poway, California, November 16, 2022.

Sandy Huffaker | Reuters

Cameras and safety

Above all else, Amazon says the changes were designed to make the delivery job safer.

A ProPublica report found Amazon’s contract drivers were involved in more than 60 serious crashes from 2015 to 2019, at least 10 of which were fatal. Amazon put cameras and sensors all over the Rivian vans, which enable warnings and lane assist technology that autocorrects if the vehicle veers out of the lane.

Dennis mentioned the importance of automatic braking and the steering wheel that starts “just kind of shaking when you get too close to something.”

“There’s just so many features that would really, really help cut back on some of those incidental accidents,” she said.

Amazon vans have driver-facing cameras inside, which can catch unsafe driving practices as they happen.

“The in-vehicle safety technology we have watches for poor safety behaviors like distracted driving, seat belts not being fastened, running stop signs, traffic lights,” said Beryl Tomay, who helps run the technology side of delivery as vice president of Last Mile for Amazon.

“We’ve seen over the past year a reduction of 80% to 95% in these events when we’ve warned drivers real time,” she said. “But the really game-changing results that we’ve seen have been almost a 50% reduction in accidents.”

As a DSP owner, Dennis gets alerts if her drivers exhibit patterns of unsafe behavior. 

“If something with a seat belt or just something flags, then our team will contact the driver and make sure that that’s coached on and taken care of and figured out, like what actually happened,” Dennis said.

That level of constant surveillance may be unsettling for some drivers. Dennis said that issues haven’t come up among her staffers. And Amazon stresses it’s focused on driver privacy.

“We’ve taken great care from a privacy perspective,” Tomay said. “There’s no sound ever being recorded. There’s no camera recording if the driver’s not driving and there’s a privacy mode.”

Amazon says the cabin-facing camera automatically switches off when the ignition is off, and privacy mode means it also turns off if the vehicle is stationary for more than 30 seconds.

Safety concerns extend beyond the vehicle itself. For example, an Amazon driver in Missouri was found dead in a front yard in October, allegedly after a dog attack.

Amazon says new technology can help. Drivers can choose to manually notify customers ahead of a delivery, giving them time to restrain pets. Another feature that’s coming, according to Le, will allow drivers to mark delivery locations that have pets.

Natividad said he had multiple close calls with dogs charging at him during deliveries.

“You customers out there, please restrain your dogs when you know a package is coming,” he said. “Please keep them inside. Don’t leave them just outside.”

Optimizing routes

Providing drivers with more efficient and better detailed routes could improve safety, too. Drivers in 2021 told us about losing time because Amazon’s routing software made a mistake, like not recognizing a closed road or gated community. In response, they sometimes tried to save time in other ways.

“People are running through stop signs, running through yellow lights,” said Adrienne Williams, a former DSP driver. “Everybody I knew was buckling their seat belt behind their backs because the time it took just to buckle your seat belt, unbuckle your seat belt every time was enough time to get you behind schedule.”

Amazon listened. The company has been adding a huge amount of detail to driver maps, using information from 16 third-party map vendors as well as machine learning models informed by satellite driver feedback and other sources.

One example is a new in-vehicle data collection system called Fleet Edge, which is currently in a few thousand vans. Fleet Edge collects real-time data from a street view camera and GPS device during a driver’s route.

“Due to Fleet Edge, we’ve added over 120,000 new street signs to Amazon’s mapping system,” Tomay said. “The accuracy of GPS locations has increased by over two and a half times in our test areas, improving navigation safety by announcing upcoming turns sooner.”

Tomay said the maps also added points of interest like coffee shops and restrooms, so in about 95% of metro areas, “drivers can find a spot to take a break within five minutes of a stop.”

In 2021, Amazon apologized for dismissing claims that drivers were urinating in bottles as a result of demanding delivery schedules. Natividad said he occasionally found urine-filled bottles in his vans before his shift in the mornings.

“As soon as I open the van, I’m looking around, I see a bottle of urine. I’m like, ‘Oh, I’m not touching this,'” he said.

Pay for Amazon drivers is up to the discretion of each individual DSP, although Amazon says it regularly audits DSP rates to make sure they’re competitive. Indeed.com puts average Amazon driver pay at nearly $19 an hour, 16% higher than the national average.

Natividad started delivering for Amazon in 2021 when his gigs as a fulltime disc jockey dried up because of the pandemic. He liked the job at the time, generally delivering at least 200 packages along the same route. However, during the holiday season that year, he once had more than 400 packages and 200 stops in a single shift.

“Towards the end of my day, they sent out two rescues to me to help out to make sure everything’s done before 10 hours,” he said.

Amazon is working to optimize its routes. But it’s an unwieldy operation. The company says it’s generated 225,000 unique routes per day during peak season.

Tomay said the company looks at the density of packages, the complexity of delivery locations “and any other considerations like weather and traffic from past history to put a route together that we think is ideal.”

There’s no one-size-fits-all solution.

“Given that we’re in over 20 countries and every geography looks different, it’s not just about delivery vehicles or vans anymore,” Tomay said. “We have rickshaws in India. We have walkers in Manhattan.”

In Las Vegas, Amazon held a roundtable last year for DSP owners and drivers. Natividad says he spoke for 20 minutes at the event about the need for Amazon to improve its routing algorithms.

“I think they should do that probably once a month, with all the DSP supervision and a few of the drivers, and not the same drivers every time. That way different feedback is given. And like seriously listen to them,” Natividad said. “Because they’re not the ones out there seeing and experiencing what we go through.” 

Natividad didn’t get to try out the routing technology in the Rivian vans before he left to deliver for USPS in July. He’s excited that the postal service is following in Amazon’s footsteps with 66,000 electric vans coming by 2028.

Amazon, meanwhile, is diversifying its electric fleet beyond Rivian. The company has ordered thousands of electric Ram vans from Stellantis and also has some on the way from Mercedes-Benz.



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Xerox, Logitech, Upstart, Hibbett, Planet Fitness & more

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Check out the companies making headlines in midday trading.

Logitech — The computer peripherals maker jumped 11.8% after Logitech reiterated its full-year guidance, which was lowered in July. Logitech has struggled with weaker demand after a boom in sales during the height of the pandemic.

Upstart — Shares surged 9.8% even after Mizuho initiated Upstart with an underperform rating, saying that there are more challenges ahead for the consumer lending company.

Stem — The stock rose 12.3% after UBS initiated Stem as a buy, saying that AI-driven energy storage company is a market leader that will get a boost from the Inflation Reduction Act.

Hibbett — The sporting goods stocks advanced 9.2% following an upgrade from Bank of America to a buy rating. The bank highlighted the company relationship with Nike and product availability among its reasons for liking the stock.

Xerox — Shares plunged 15% after the seller of print and digital document products and services reported disappointing earnings and cut its full-year revenue guidance. Xerox CEO Steve Bandrowczak said in a release that “profitability remains challenged by persistently high inflation and continued supply chain constraints.”

Brown & Brown — Shares of the insurance company dropped 11% after Brown & Brown missed earnings expectations. Brown & Brown posted earnings of 50 cents per share on revenue of $927.6 million. The company was expected to report earnings of 60 cents per share on revenue of $945.8 million, according to consensus estimates on FactSet.

Qualtrics International — Shares of the customer feedback software company jumped 7.7% after Qualtrics reported earnings that exceeded expectations, and raised its full-year outlook.

Ross Stores — Shares of the off-price retail jumped 5.8% following an upgrade to overweight from Wells Fargo. The bank called Ross Stores one of the “best ways” to trade the sector.

SAP — Shares of the German business software company advanced 6% after SAP reported quarterly results that topped expectations and maintained its full-year forecast.

PulteGroup — The home construction company jumped 5.9% despite disappointing earnings expectations. PulteGroup posted earnings of $2.69 per share on revenue of $3.94 billion. Analyst surveyed by Refinitiv were expecting earnings of $2.82 per share on revenue of $4.17 billion.

JetBlue — The airline slid 3.6% after a third-quarter earnings miss of 21 cents per share, versus a Refinitiv consensus estimate of 23 cents. Revenue was in line with estimates, at $2.56 billion. JetBlue had a quarterly profit of $57 million, due to elevated travel demand and higher fares, which helped offset rising costs.

Planet Fitness — The gym stock jumped 4.5% after Piper Sandler upgraded Planet Fitness to overweight from neutral, saying that shares are attractive and will get a boost from participation from younger generations.

General Motors — Shares of General Motors rose 3.6% after the automaker handily beat third-quarter earnings expectations. The company also maintained its full-year outlook.

United Parcel Service — Shares of the delivery company gained 1% after UPS reported stronger-than-expected earnings for the third quarter. The company earned an adjusted $2.99 per share, 15 cents better than analysts expected, according to Refinitiv. Revenue fell short of expectations, however, as its supply chain solutions segment declined year over year. UPS did maintain its full-year guidance.

General Electric — The stock declined 1.8% after General Electric cut its full-year outlook because of supply chain issues. The company otherwise posted stronger-than-expected revenue.

— CNBC’s Michelle Fox, Jesse Pound, Carmen Reinicke and Samantha Subin contributed reporting.

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Morgan Stanley says buy the dip on these 5 global stocks

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Global markets have been slammed by a slew of macro headwinds, but Morgan Stanley sees opportunities for investors to pile into “fallen angels” stocks which the bank thinks have sold off materially and now look attractive.

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PepsiCo, General Electric, UPS and others

Check out the companies making headlines in premarket trading.

PepsiCo – Shares of the food and beverage giant dipped in the premarket although the company reported a beat on the top and bottom lines in the recent quarter as consumers paid more for some of the company’s key brands.

General Electric – General Electric’s stock fell 3.5% despite topping estimates in its quarterly report. The company confirmed its previous full-year profit guidance range and said it sees challenges from inflation and supply chain issues.

United Parcel Services — Shares of the shipping and logistics giant gained 1.7% after beating analyst estimates on the top and bottom lines. UPS reported adjusted earnings per share of $3.05 on revenues of $24.38 billion while analysts expected $2.88 earnings per share on $23.79 billion in revenue.

3M – 3M shares were flat premarket after reporting quarterly earnings that topped estimates. The company saw revenues of $8.83 billion while analysts expected $8.74 billion in revenue.

D.R. Horton — The homebuilder stock rose 2.8% during premarket trading after beating analyst estimates in the previous quarter. D.R. Horton reported adjusted earnings of $4.03 a share on revenues of $8 billion. Analysts anticipated $3.37 adjusted earnings per share on $7.62 billion in revenue.

SeaWorld — The theme park and entertainment company’s stock surged 4.6% after Rosenblatt Securities initiated coverage with a buy and said despite pandemic headwinds the company has faired well under the vision of big investor Scott Ross.

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Amazon ramps up FedEx, UPS rivalry by expanding Prime to third parties

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Amazon will let other online merchants piggyback on its Prime service to deliver goods quickly to their customers.

The company on Thursday launched a new service, Buy with Prime, that lets third-party merchants use Amazon’s vast shipping and logistics network to fulfill orders on their own sites, while also appealing to Amazon’s 200 million-plus Prime customers.

These web sites will be able to put the Prime badge on their websites next to items that are eligible for free two-day or next-day delivery. Prime members will use the payment and shipping information stored on their Amazon account to place an order.

Buy with Prime won’t be free for sellers, and pricing will vary depending on payment processing, fulfillment, storage and other fees.

To start, the service will only be available by invitation to sellers who use Fulfillment by Amazon, or FBA. With that service, merchants pay to have their inventory stored in Amazon’s warehouses and to make use of the company’s supply chain and shipping operations. Eventually, it will be extended to other merchants, including those not selling on Amazon.

Amazon has long set its sights on being the fastest in the online delivery race. For years, the company has plowed profits back into physical expansion, growing its fulfillment centers and shipping partnerships across the country in order to offer two- and same-day delivery in more markets. It has amassed a hefty fleet of its own delivery drivers, trucks and planes to speed packages to customers’ doorsteps.

Industry watchers have paid close attention to Amazon’s growing in-house logistics operations, speculating it aims to directly compete with major carriers like UPS, FedEx and the U.S. Postal Service. Indeed, Dave Clark, Amazon’s CEO of worldwide consumer, told CNBC last year Amazon is on track to become the nation’s largest delivery service by early 2022.

The company already handles some orders for products sold on some other web sites. It offers a program called Multi-Channel Fulfillment, which lets sellers store and ship products using Amazon’s services regardless of whether they’re selling on the home site.

Amazon previously offered a service where its drivers picked up packages from retailers and delivered them to consumers, but it was paused at the beginning of the coronavirus pandemic as Amazon became overwhelmed with online orders.

While Buy with Prime is likely to remain small at launch, it could grow into a lucrative service for Amazon over time, said Bob O’Donnell, founder and chief analyst at Technalysis Research.

“If you think about it, one of Amazon’s most successful businesses was started as an internal tool,” said O’Donnell. “That being AWS [Amazon Web Services], of course.

“They’ve built this huge logistics business initially for their own purposes and now what they’re starting to do is leverage that as its own service,” O’Donnell added.

In some ways, Amazon has already turned its massive shipping and logistics operations into a cash machine. Amazon reported that third-party seller services, which includes commissions, fulfillment and shipping fees, along with other services, grew 11% year-over-year to $30.3 billion in the latest quarter.

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Amazon slaps U.S. sellers with 5% fuel and inflation surcharge

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Amazon said Wednesday it plans to add a fuel and inflation surcharge of roughly 5% to existing fees it collects from U.S. third-party sellers who use the company’s fulfillment services.

The fee will go into effect in about two weeks, and is “subject to change,” the company said in a notice to sellers that was viewed by CNBC.

“The surcharge will apply to all product types, such as non-apparel, apparel, dangerous goods, and Small and Light items,” the notice stated. “The surcharge will apply to all units shipped from fulfillment centers starting April 28.”

With inflation soaring and oil prices on the rise, Amazon is trying to offset some of its own costs by passing fees along to sellers

Amazon already collects fees from sellers who use Fulfillment by Amazon, or FBA. Merchants pay to have their inventory stored in Amazon’s warehouses and to make use of the company’s supply chain and shipping operations.

Some 89% of Amazon’s 2 million-plus sellers used FBA in 2021, according to a report from Jungle Scout, which creates product research software for Amazon sellers.

“In 2022, we expected a return to normalcy as COVID-19 restrictions around the world eased, but fuel and inflation have presented further challenges,” an Amazon spokesperson said in an email to CNBC. “It is still unclear if these inflationary costs will go up or down, or for how long they will persist, so rather than a permanent fee change, we will be employing a fuel and inflation surcharge for the first time—a mechanism broadly used across supply chain providers.”

Amazon said its fuel and inflation surcharge is 24 cents per unit, below the UPS fuel surcharge of 42 cents and FedEx’s fee of 49 cents, as of March 21, 2022.

WATCH: How Amazon plans to fix its multi-billion dollar returns problem

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How Amazon plans to fix its massive returns problem

Amazon is handling a rapidly growing number of returns that are causing a massive problem for the e-commerce giant and the planet.

A National Retail Federation survey found a record $761 billion of merchandise was returned to retailers in 2021. That amount surpasses what the U.S. spent on national defense in 2021, which was $741 billion. 

Amazon wouldn’t share its overall returns numbers, but in 2021, the National Retail Federation estimates 16.6% of all merchandise sold during the holiday season was returned, up more than 56% from the year before. For online purchases, the average rate of return was even higher, at nearly 21%, up from 18% in 2020. With $469 billion of net sales revenue last year, Amazon’s returns numbers are likely staggering. 

U.S. returns generate 16 million metric tons of carbon emissions during their complicated reverse journey and up to 5.8 billion pounds of landfill waste each year, according to returns solution provider Optoro. 

“We’re talking about billions, billions, and billions of [dollars of] waste that’s a byproduct of consumerism run amok,” said Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada. 

“The reverse logistics are always going to be nasty because the merchandise, in most cases, cannot be resold as it was originally,” Cohen said. “The most expedient pathway is into a dumpster, into a landfill.”

Amazon has told CNBC it sends no items to landfills but relies on “energy recovery” as a last resort.

“Energy recovery means you burn something to produce heat, to produce energy. And you rationalize the disposal of goods as a conversion from one form of matter to another,” Cohen said. “To the degree they’re doing that I don’t think they fully reveal.”

Amazon has said it is “working towards a goal of zero product disposal,” although it wouldn’t set a target date for reaching that goal.

“We encourage a second life on all of the products that we receive back,” said Cherris Armour, Amazon’s head of North American returns in an exclusive interview with CNBC.

“And that comes in the form of selling the majority of the items that we do receive. They are resold as new and used, or they go back to the seller or supplier, or we donate them,” Armour said.

Energy recovery, Armour added, is only for “items that we can’t recover or are not recyclable” due to legal or hygienic reasons or product damage.

Armour first joined Amazon 12 years ago, starting as a night shift operations manager at a fulfillment center in Indianapolis. She said the goal of zero product disposal was something they talked about at Amazon for many years. 

Cherris Armour, Amazon’s head of North American reverse logistics, poses with two other Amazon employees at a fulfillment center in Phoenix, Arizona, in November 2021.

Amazon

Easy returns are good business, but then what?

Researchers have found that consumers love easy returns.

An often-cited 2018 survey of 1,300 online shoppers found 96% would come back to a retailer if they had a good returns experience, and 69% were deterred from buying if they knew they’d have to pay for return shipping. In 2019, Amazon expanded free, easy returns to millions of items.

“Amazon has really been a game changer in the reverse logistics world because of how easy their returns are,” said Zac Rogers, who ran returns for an Amazon subsidiary called Quidsi from 2010 to 2012 before he became an assistant professor of supply chain management at Colorado State University.

“So now you have your more traditional retailers like Walmart or Target sort of implementing similar policies because that’s a really big piece of how you compete on the retail side of it,” he said. “It creates loyalty to the brand, makes you more likely to sign up for [Amazon’s] Prime, and Prime is really the thing that drives the flywheel of that company.”

Amazon now allows returns at 18,000 locations, including the option to drop off items without a box or label at Kohl’s, UPS and some Whole Foods stores. There’s a Try Before You Buy program for Prime members designed to make returns for clothes even easier, with return labels already included in the box. On the extreme end of easy returns, Amazon is increasingly allowing customers to keep some “returned” items while still refunding them.

“If I tell you to keep the product, instead of counting the cost and the carbon effect of taking it back, I look better as a company, don’t I?” said Tony Sciarrotta, executive director of the Reverse Logistics Association. “Let’s let the people keep it and then it doesn’t count against us. But now you, as a consumer, what do I do with this thing, right?”

Amazon now has to solve the problem of what to do with returns on the back end.

Amazon spent nearly $152 billion on logistics in 2021 — nearly a third of all net sales. That’s up from $119 billion in 2020. Returns factor into these costs, so anything Amazon can do to lower those costs will help the company’s bottom line.

“They’re going to do it for their own self-interests, although they’ll couch it in the name of saving the planet,” Cohen said. “But at the end of the day, their action is going to be based upon the economics of what we’re seeing.”

To that end, in 2019 Amazon launched a donation program that allows U.S. sellers to automatically donate excess and returned goods to a network of 100,000 local charities through a partnership with nonprofit network Good360. The organization works with about 400 companies, including giants such as Walmart, CVS and Nike, but says Amazon is its biggest corporate donor.

Good360 says it coordinates with local charities for direct pickups at more than 230 Amazon facilities, which helps Amazon save on transportation costs as gas prices hit record highs. The nonprofits pay Good360 a fee to help cover freight costs.

They also agree to certain rules before getting access to Amazon donations.

“They’re not going to be reselling those items, putting them on online auction sites, taking them to local flea markets or that sort of thing. So protecting that brand integrity of our donors is really central to what Good360 does,” said Shari Rudolph, Good360’s chief development officer and CMO.

There are also potential tax write-offs that can come with donating to a nonprofit.

“There are some programs that are available,” Rudolph said. “I don’t have any visibility into what the Amazon team is taking advantage of, if anything.”

Good360 program operations manager Regina Freeman handles Amazon returns in Baltimore, Maryland, in September 2020

Jim Halling Photography

Secondary market

There’s also a boom in the secondary market that’s making it easier to make money on secondhand items. Amid mounting pressure from younger shoppers who want sustainable shopping options, and a supply chain backlog causing a shortage of new goods, Colorado State’s Rogers calculated the size of the 2021 secondary market at $688 billion, up from $649 billion in 2020.

As secondhand items became a potential moneymaker, Amazon launched two new programs to rehome returns in 2020. It now gives sellers the option of liquidating returns, sending them to major third-party liquidators such as Liquidity Services to auction them off on the secondary market.

Also in 2020, Amazon started offering select sellers a Grade and Resell option for returns. With this option, Amazon evaluates the returned item and gives it a grade — Like New, Very Good, Good or Acceptable — then resells it on special sections of its site. There’s Warehouse Deals for used goods, Amazon Renewed for refurbished items, Amazon Outlet for overstock, and a tongue-in-cheek daily deal site called Woot! that sells a $10 “Bag of Crap.” Amazon even offers customers gift cards to trade in their used Amazon devices, which it can try to refurbish and resell.

“We expect that these programs will help to give a second life to more than 300 million units a year,” Amazon’s Armour said.

That’s just smart business, explained Rogers, the former Quidsi employee.

“Let’s assume a 20% return rate, that’s $93.8 billion of returns coming in. If instead of getting pennies on the dollar from a salvage dealer, you could get maybe 30 cents on the dollar from strategic targeted disposition, that bumps us up to $28 billion,” said Rogers.

“At $28 billion, having Woot or Amazon Outlet, now that makes a lot more sense because we’re really starting to get a return for our investment,” he said. “Before, when we were at a small scale, it’s like, ‘This is trash, get rid of it.’ Now, when we get bigger, they’re scaling to the point where monetizing those returns, it’d actually be irresponsible not to.”

But reverse logistics experts say the best way to reduce waste, and cut the expense of returns, is to prevent them from happening in the first place and then to create disincentives for returning goods.

“The industry at large would bow down to Amazon in a heartbeat if Amazon were to start to charge for returns because it would give them air cover to do the same,” Cohen said.

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Robinhood, EPAM Systems, Kroger and more

Kroger is opening automated warehouses around the country to build a larger and more profitable online grocery business.

Kroger

Check out the companies making headlines in midday trading Friday.

Robinhood — Shares of the trading app dropped more than 7% after Goldman Sacks downgraded the stock to sell from neutral. The Wall Street firm cited softening retail engagement levels, continued weakness in account growth and a limited path to near-term profitability for its updated outlook.

WD-40 — The lubricant maker reported quarterly results that beat analyst expectations, sending the stock up nearly 9%. WD-40 reported a profit of $1.41 per share, easily beating a Refinitiv consensus estimate of $1.01 per share.

EPAM Systems — Shares for the software company surged 12.5% after EPAM Systems said it would terminate its operations in Russia. Stifel analysts said in a late Thursday note that they interpreted the decision as “positive as it removes the most visible overhang.”

Kroger — Shares for the grocery chain jumped nearly 3% after Bank of America upgraded Kroger’s stock to buy from neutral. The firm believes Kroger can pass on the cost of rising food prices to customers.

Target — Shares jumped 2.5% in midday trading. Target on Thursday was named a top pick in retail by Barclays, which said the stock is undervalued given its fundamental strength.

UPS — UPS shares dipped about 0.8% after Bank of America downgraded the stock, citing “deteriorating demand.” The bank downgraded eight other transport companies it worries will take a hit from falling prices and slowing demand.

HP — Shares for the computer maker declined nearly 3% after UBS downgraded the stock to neutral from buy. UBS believes high valuations and weak consumer sentiment will limit upside for HP. The call comes after Warren Buffett’s Berkshire Hathaway purchased a major stake in the company this week.

— CNBC’s Yun Li and Samantha Subin contributed reporting

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What really happens to them?

Sending back an online order has never been easier. It’s often free for the customer, with some retailers even allowing customers to keep the item while offering a full refund.

Amazon returns can be dropped off at Kohl’s, UPS or Whole Foods without boxing it up or even printing a label.

But there’s a darker side to the record number of returns flooding warehouses after the holidays.

“From all those returns, there’s now nearly 6 billion pounds of landfill waste generated a year and 16 million metric tons of carbon dioxide emissions as well,” said Tobin Moore, CEO of returns solution provider Optoro. “That’s the equivalent of the waste produced by 3.3 million Americans in a year.”

Moore says online purchases are at least three times more likely to be returned than items bought in a store. In 2021, a record $761 billion of merchandise was returned, according to estimates in a new report from the National Retail Federation.

That report says 10.3% of those returns were fraudulent. Meanwhile, Amazon third-party sellers told CNBC they end up throwing away about a third of returned items.

“Somebody has to pay for that,” said Micah Clausen, who sells party supplies and home goods on Amazon under a third-party store named Iconikal. “It’s falling back on either Amazon or the third-party seller. It comes out of their bottom line and inevitably makes prices go higher.”

UPS predicts the 2021 holiday season will see a 10% increase in returns compared to the year-earlier period, which translates into more waste — and expense — for all online retailers.

At the head of the pack, Amazon has received mounting criticism over the destruction of millions of items. Now the e-commerce giant says it’s “working toward a goal of zero product disposal.” Last year, it launched new programs to give sellers like Clausen new options to resell returns, or send them to be auctioned off on the liquidation market.

Liquidity Services consumer marketing manager Meredith Diggs explains one way e-commerce has normalized shopping habits that lead to more returns.

“Wardrobing [is] where people will order the same thing in three different sizes to see which one fits and then they return the other two, not realizing that those other two most of the time don’t go back on that retailer’s shelves,” Diggs said.

“Categories like apparel see really, really high return rates in the 10s of percents,” added Raunak Nirmal, who used to work at Amazon and now runs an Amazon aggregator, Acquco, with more than 40 third-party brands. His return rate is closer to 3%.

“If it’s a new product, Amazon would allow that product to get resold on the listing as new, but it really needs to be in pristine condition for that to happen and that’s more rare than you would expect, even if the customer hasn’t used the product at all,” Nirmal said.

When an item can’t be sold as new, Amazon gives the seller up to four options for what to do with returns: each with a fee: Return to Seller, Disposal, Liquidation, or (by invitation only for now) Fulfillment by Amazon Grade and Resell.

With the Return to Seller option, the return leaves the Amazon warehouse for several more legs on a truck, plane or cargo ship. It heads back to the seller for further processing, then it could go off to another Amazon warehouse for sorting and repacking, then on to a new customer, who could always choose to return the item again.

“You’re essentially forced to decide if you want to recall that inventory to your warehouse — which is an expensive process — repackage it yourself, and then ship it back into a warehouse to sell, which doesn’t make sense I would say 80% to 90% of the time. Or you could choose to dispose it,” Nirmal said.

Disposal is an all-too-common fate for returns from many of the biggest online retailers. In a statement, Amazon told CNBC, “No items are sent to landfill. We are working towards a goal of zero product disposal and our priority is to resell, donate to charitable organizations or recycle any unsold products. As a last resort, we will send items to energy recovery, but we’re working hard to drive the number of times this happens down to zero.”

“Energy recovery” often means it’s burned. In the words of the U.S. Environmental Protection Agency, it’s “the conversion of nonrecyclable waste materials into usable heat, electricity, or fuel through a variety of processes, including combustion, gasification, pyrolization, anaerobic digestion and landfill gas recovery.”

“The thing that really shocked me honestly, was the items that the computer system tells you to destroy,” said Shay Machen, a seasonal worker at an Amazon returns center in Mississippi. “I had a book come back, it was a children’s book, and the customer said that it was smashed upon arrival and bent, and it was not. And no matter what I put into the system, it said destroy the item. And that was kind of heart wrenching.”

Disposal of returns is a widespread practice in e-commerce. Luxury retail brands like Burberry have been criticized in the past for burning millions in unsold merchandise to protect their brands, a practice Burberry told CNBC it stopped in 2018. A Danish TV station reported H&M burned 60 tons of new and unsold clothes since 2013, a claim that H&M told CNBC was a misunderstanding. An H&M spokesperson said, “The products media referred to had been affected by mold or did not comply with our chemical restrictions.” Similar claims have hit Coach, Urban Outfitters, Michael Kors, Victoria’s Secret, and J.C. Penney.

“It’s the easiest thing to do and sometimes certain brands do it because, you know, they want to protect their brand and they don’t want lesser valued items out there on the market,” Moore said. 

Some brands, like Nike, have found creative ways to upcycle returns, making them into new items of value.

“Some of the shoes they can’t sell might end up being grinded up and turned into tracks,” Moore said. “It does take energy to grind and turn items into other items. I think first and foremost if you can sell it in its original form that it’s the best scenario for the environment.”

Amazon has a series of programs meant to do just that. For certain electronics like Amazon devices, phones and video games, it gives customers the option to send them to a certified recycler, or trade them in for Amazon gift cards. And since 2019, its FBA Donations program allows sellers to automatically offer eligible overstock and returns to charity groups through a nonprofit network called Good360. Amazon says more than 67 million items have been donated so far.

Amazon also announced two new re-homing programs last year, after British broadcaster ITV reported that the company was destroying millions of items like TVs, laptops, drones and hairdryers at one U.K. warehouse.

First, there’s Liquidation, which Amazon now offers sellers as an option instead of disposal.

Amazon and other major retailers partner with liquidation marketplaces like Liquidity Services and B-Stock Solutions, which auction off unwanted inventory to resellers by the pallet or even truckload.

“You can recover about 5% of your sale price if your product can get liquidated,” Nirmal said. “And at the end of the day, it will end up in someone’s hands who can hopefully use it.

YouTube creators like Hope Allen have built a following from finding online deals, and liquidation pallets have become a popular trend. Last year, she paid $575 for a pallet of Amazon returns on Liquidation.com supposedly worth almost $10,000 and unpacked it on her channel, where she goes by HopeScope.

“There were definitely some items in the pallet that were actual trash. But then there were other items like an UGG robe or like some nice heated winter gear that I’m like, really? They didn’t think this was worth restocking? This is a $300 coat,” Allen said.

“For one of our clients one time, I think we auctioned something like 42 truckloads of floor tiles in one lot,” said B-Stock Solutions founder and CEO Howard Rosenberg. “We’ve sold lots of cellphones that have been north of a million dollars in a single auction.”

Liquidations can go to resellers, who then offload items at flea markets or on sites like Craigslist and eBay. Allen sells the items she doesn’t keep on Poshmark or donates them.

“It’s like a fancy version of dumpster diving, but slightly more promising, safer and more legal,” Allen said.

Amazon is offering some sellers another option, but it’s by invitation only until later this year.

Under the FBA Grade and Resell program, Amazon gives items a grade like New, Very Good, Good or Acceptable, then resells it on special sections of its site. These sections include Warehouse Deals for used goods, Amazon Renewed for refurbished items, Amazon Outlet for overstock and a tongue-in-cheek daily deal site called Woot! that sells a $10 “Bag of Crap,” and describes itself as “a wild outpost on the fringes of the Amazon community.”

Watch the video to learn more about where online returns really end up.

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