The costly journey of returned goods means big business for some

By Manish Singh

An employee walks between rows of storage racks at one of Amazon.com's fulfillment centers in Rugeley, U.K.
Simon Dawson Bloomberg | Getty Images
An employee walks between rows of storage racks at one of Amazon.com's fulfillment centers in Rugeley, U.K.

There's a good chance that the $100 printer, the $300 wide-screen monitor, or the $170 router you recently bought from Amazon weren't supplied to the e-commerce giant by their original manufacturers. In fact, the order may have been fulfilled by someone like Casey Parris, who resells items that customers previously returned to retailers.

Based in Florida, Parris spends about five hours each day visiting thrift stores and scanning auction and liquidation websites for interesting items, he told CNBC. Sometimes he finds auto parts, other times it's a pair of sneakers, and occasionally he purchases printer cartridges — all with the goal of reselling them.

Walter Blake, who lives in Michigan, does the same. For years, he's been selling electronic items on Amazon that he acquires from a network of places.

Blake and Parris are part of a growing cottage industry where dealers acquire discarded items at very low prices, only to resell some of them back on Amazon and eBay at a premium.

Retailers don't mind that — that's because retrieving returned items can sometimes cost more than reselling them earns.

With the gift-buying season just around the corner, retailers must brace for more returns.

Last year, customers in the U.S. returned about $351 billion worth of items that they had purchased from brick-and-mortar retailers and online stores, according to estimates by National Retail Federation.

Revolve, a California-based online clothing retailer which filed for a public listing earlier this year, disclosed that it made just under $400 million in net sales last year — but paid out $385 million for return items, according to one industry expert.

For this holiday season, research firm eMarketer estimated that online sales will amount to $123.39 billion. But approximately 30 percent of that — or up to $37 billion — will be returned, according to consultancy firm CBRE, which works with several top retailers.

Buyers return an astonishing number of packages they buy from Amazon and other e-commerce sites, so much so that retailers are sometimes left with little choice but to get rid of large swaths of inventory at a cost.

"While these costs can vary widely based on a number of factors ... there is no doubt that the expense will eat into profit margins." -David Egan, CBRE

Returns are costly to retailers in two ways, explained David Egan, global head of industrial and logistics research at CBRE. "First are the shipping and handling costs. The process of reversing an online order has many steps and includes the cost of the delivery as well as the many touches — each of which comes with a labor cost — that move the item back into inventory," he told CNBC.

"While these costs can vary widely based on a number of factors — the size of the retailer, the size of the item, the shipping origin and destination, etc. — there is no doubt that the expense will eat into profit margins," said Egan.

The second type of cost is more difficult to quantify but every bit as meaningful, he added: "The longer an item stays out of circulation and is unable to be sold, the less value it has."

Shoppers arrive at The Trafford Centre, and wait for the shops to open in the hope of a "Black Friday" bargain on November 27, 2015 in Manchester, United Kingdom. 
Christopher Furlong | Getty Images 
Shoppers arrive at The Trafford Centre, and wait for the shops to open in the hope of a "Black Friday" bargain on November 27, 2015 in Manchester, United Kingdom. 

Additionally, with some items — especially those that have a number of parts such as car seats or strollers – liability becomes a big issue for retailers, Zachary Rogers, assistant professor of supply chain management at Colorado State University, told CNBC.

"Amazon's returns workers can't verify that all of the parts are there or that there hasn't been damage," said Rogers, who previously worked as a returns manager at an Amazon facility.

To offset those costs, retailers work with resellers to handle return and excess items. B-Stock, for instance, is a business-to-business marketplace for return and excess merchandise.

The nine-year-old company, which was founded by eBay alum Howard Rosenberg, works with nine of the top 10 U.S. retailers. The company told CNBC that it is on track to sell 70 million returns or excess items this year — up 20 percent compared to last year.

Headquartered in Washington D.C., Optoro is another firm that offers a range of services to retailers to help them recoup the losses on returns. "Our technology uses machine learning and data algorithms to determine the highest value channel for each returned item, including return to stock, return to vendor, list on a secondary marketplace, refurbish, or donate," Carly Llewellyn, senior director of marketing at Optoro, told CNBC.

Optoro also operates Blinq.com, a secondary marketplace, through which the company sells returned items directly to consumers; and Bulq.com, a similar channel for business-to-business transactions. At one point, several used Apple computers were listed on Blinq.com at about 86 percent below their original price.

The challenge of returns is not unique to the United States. Amazon sees more product returns in India than it sees in any other market where it operates, Dharmesh Mehta, vice president of consumer and brand protection at Amazon, told Indian daily Economic Times.

In India, Walmart-controlled Flipkart launched 2Gud, a secondary marketplace that sells refurbished and used items, in August this year to tackle the problem. Amazon India also sells refurbished items. Marketplace B-Stock works with businesses in 130 nations, it said.

Meanwhile, a growing number of people are hopping onto the bandwagon, and trying their luck at selling items on mainstream shopping portals. Dallas-based Jordan Kilburn, who quit his job early last year to become a seller on Amazon, said that the resale business — especially on Amazon and eBay — has picked up at a tremendous pace in the last two years. He did not offer any figures, however.

Kilburn said it was partly due to viral videos on Alphabet's YouTube from first-time users who share their excitement over buying pallets of random returned items from liquidation websites. Many of them even try to sell those items back on Amazon and eBay, he said, adding that it helps that the two e-commerce giants maintain easy terms when signing up new sellers.

Amazon and eBay did not respond to CNBC's request for comment on this story.

Larry Lubarsky, who said he started selling items on Amazon in 2014, has shared his journey on YouTube and Facebook, where he documents the growth of his business and shows newcomers the ropes. He claims to have made $18 million in gross sales last year alone.

Colorado State University's Rogers cautioned, however, that average consumers often do not know they are buying old items. Amazon, for its part, says it labels used items as such on its site.

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