Overview

Amazon's customer-friendly returns system is increasingly backfiring on third-party sellers, with fraudulent returns nearly tripling since 2018 and creating serious financial and operational strain. A recent CNBC investigation highlights how the $890 billion annual cost of retail returns is disproportionately hitting small businesses on the platform, prompting some sellers to abandon Fulfillment by Amazon entirely or leave the marketplace altogether.

Key Points

• Fraudulent returns have surged — The rate of fraudulent returns climbed from 5% of all U.S. retail returns in 2018 to nearly 14% in 2024, according to industry data
• New return rate fees launched — Amazon introduced fees in mid-2024 for sellers whose products exceed certain return rate thresholds, targeting product quality improvements
• Return rates have dipped slightly — U.S. seller return rates dropped nearly 5% in 2024 following implementation of the new fee structure
• Warning labels now appear on high-return items — Amazon has begun flagging frequently returned products, giving shoppers more information before purchasing
• Expanded appeal options for sellers — Businesses can now file multiple appeals when contesting fraudulent returns, providing more chances to recover losses

The Human Cost of Returns Fraud

The damage from returns fraud goes well beyond the balance sheet. Sellers report that Amazon's system sometimes restocks fraudulently returned items and ships them to new customers, creating health and safety risks that can devastate a brand's reputation. In one particularly alarming case reported by CNBC, a baby product seller discovered that Amazon had shipped one of her products to a customer containing another person's spoiled breastmilk. That seller ultimately left FBA entirely, sacrificing the Prime badge and its sales advantages to protect her customers.

Another seller of reusable swim diapers reported receiving returns of visibly soiled products that were then restocked and sent to unsuspecting buyers. These incidents illustrate how the returns system can turn a seller's own inventory into a liability, with the brand taking the reputational hit for problems created by fraudsters and Amazon's automated restocking processes.