Where Amazon Returns Go to Be Resold by Hustlers
Welcome to the abyss of the “reverse supply chain,” where hope springs eternal.
With a couple hundred dollars and a few minutes, you could go to a liquidation website right now and buy a pallet full of stuff that people have returned to Amazon. It will have, perhaps, been lightly sorted by product category—home decor, outdoor, apparel—but this is mostly aspirational. For example, in one pallet labeled “home decor,” available for sale on liquidation.com, you could find hiking crampons, shimmer fabric paint, a High Visibility Thermal Winter Trapper Hat, a Mr. Ellie Pooh Natural White Paper List Pad, a St. Patrick’s Pot O’ Gold Cupcake Decorating Kit, a Spoontiques Golf Thermometer, a Feliz Cumpleanos Candle Packaged Balloon, and five Caterpillar Hoodies for Pets.
Every box is a core sample drilled through the digital crust of platform capitalism. On Amazon’s website, sophisticated sorting algorithms relentlessly rank and organize these products before they go out into the world, but once the goods return to the warehouse, they shake free of the database and become random objects thrown together into a box by fate. Most likely, never will this precise box of shit ever exist again in the world. On liquidation.com, each pallet’s manifest comes with suggested prices for each product in a pristine state. If you add them up, the “value” of the box might be $4,000, while the auction price might only come to $200.
While Amazon doesn’t publicly talk about how it chooses which returned products go back up for sale and which go to the liquidators, it does sell some products through Amazon Warehouse at a discount. If it sounds crazy to sell products at massive discounts, consider that goods sitting in a warehouse are a cost. So is the labor necessary to repackage something for resale. If Amazon and other retailers let another company pay them something, they avoid those costs and add some revenue.
So, Liquidity Services, the operator of liquidation.com, became a major (though not exclusive) handler of Amazon’s American liquidations. The company calls dealing with returns “the reverse supply chain”—a part of the retail business that has been growing in importance as online shopping becomes more popular. Liquidity Services now has 3,357,000 registered buyers on its various liquidation websites. In the past fiscal year, it sold $626.4 million worth of stuff.
Amazon represents a growing chunk of Liquidity’s business. In its most recent SEC filing, the company disclosed that it spent approximately $33.7 million on Amazon liquidation inventory, which it then turns around and sells for maybe 5 percent of the supposed retail value. And, assuming the company is trying to turn a profit, it must buy the inventory for a fraction of that. Doing the rough math, we’re talking about inventory that once had a collective value reaching into the billions, before it landed in some box on a doorstep.
Of course, once people do buy all these unwanted goods, they rearrange them into more profitable configurations. It seems so easy: Sort the still-good stuff from the broken objects, the trash, the worthless, and then post that stuff to Amazon or eBay. Who couldn’t sell $4,000 worth of stuff for more than $200?
My colleague Alana Semuels demonstrated in her story on the proselytizers selling get-rich-quick classes about retailing products on Amazon that the lure of the high-margin, online business is nearly irresistible. This is a variation on that hustle: Buy liquidation, sell high. This idea has won serious viewership for some YouTubers. It’s become a micro-genre on the video service, where different personalities unbox dozens of things and oooh and ahhh at how much money they are worth relative to what they paid for the box of stuff.
YouTuber Safiya Nygaard got 12.6 million views for her unboxing of a liquidation pallet. YouTuber Kristofer Yee racked up 2.7 million views with a similar video. Another YouTuber, Randomfrankp, got 1.8 million. There’s an undeniable appeal to watching someone go through a whole bunch of strange stuff on camera. And these videos appear to have driven a noticeable spike of interest in liquidation on YouTube.
The implication in most of the videos is that the value of what’s in the box far exceeds the cost. Of course, two Yahoo reporters did it for themselves and got soaked. There’s a difference between something having a suggested retail price of $40 and actually getting someone to pay you $40 for it. The exchange value of most of these items is incredibly low outside the retail context in which they were purchased.
A level-headed Flint, Michigan, liquidation reseller named Walter Blake Knoblock offered a more realistic assessment in a live video he posted last year. He proffered five rules for Amazon pallets. The first? “Don’t expect it all to be good.” “ Don’t get discouraged if you’re halfway through your pallet and it’s all trash,” he said. In his business, it’s typical to throw away a third to half of everything.
After other rules about electronics (“boom or bust”), shipping (“Understand freight cost”), and sales strategy (“Speed through your inventory; don’t squeeze it for every dollar”), he gave his final lesson: “Don’t invest money that you absolutely need. It isn’t like a savings account at your bank. You’re taking a risk.”
Staring into his camera from his warehouse in Michigan, the young entrepreneur implored his viewers to consider the bad things that could happen, not merely the potential profits.
“I don’t want to let anyone believe the fallacy that pallets are a guaranteed way to make money. They’re absolutely not. You’re going to see a bunch of videos of people making a bunch of money on pallets,” Knoblock said. “But just keep in mind that, just like everything else in social media, you’re probably only seeing the top 10, 5 percent of what they do.”
“I’m just pulling this number out of my ass; I don’t know,” he added. “But just like everything else in social media, always take people’s benefits and their profits with a grain of salt.”
But who wants to hear that? That video has just over 30,000 views, orders of magnitude fewer than the hype videos.
The people who seem to have decent success have to work hard and stay disciplined with their purchases and sales. Which is, more or less, the opposite of getting rich quick, or as Knoblock put it in the title of one video, “There Is No Such Thing as Passive Income.”