Question: Amazon Warehouses often destroy unsold stock items. Sometimes millions of items are destroyed. Why?
Answer: Because the cost of occupying an Amazon warehouse shelf exceeds the cost of keeping the item. Discarding the item is a cost savings.

Welcome to Costs Matter, a series that asks different questions all of which have the same answer: to better manage costs. The costs are frequently economic though not always. The series focuses narrowly on the impact of costs. It does not claim these costs are the sole cause. To read more in the series, visit https://medium.com/galileo-onwards/costs/home.

According to a Jun 2021 expose by ITV News authored by Richard Pallot, Amazon UK destroys millions of unsold inventory items every year. The article, describes their evidence, investigative techniques, and other usual reporting you might expect — spokesperson testimony and so on. It also has much moralizing. Amidst all this it also explains why the items are destroyed: “Many vendors choose to house their products in Amazon’s vast warehouses. But the longer the goods remain unsold, the more a company is charged to store them. It is eventually cheaper to dispose of the goods, especially stock from overseas, than to continue storing the stock.” [emphasis added]

Since Costs Matter is an economic series not a moral one, let’s look at the economic reasons to destroy stock in a bit more detail. We’ll analyze the last paragraph’s last sentence. And we’ll do all this using Amazon’s resources as our reference.

Let’s look at the cost of storage on Amazon’s selling website. I’ve used Amazon UK because the ITV article talks about Amazon UK. Though I didn’t do it, I’m fairly certain Amazon USA also destroys a lot of inventory and for similar reasons. (Inputs always welcome.) The site is https://sell.amazon.co.uk/pricing. The rates are as shown in the image below:

Source: https://sell.amazon.co.uk/pricing. Accessed on Jul 23, 2021.

Exactly as we expect, storage costs are directly proportional to space occupied. Costs are higher during UK’s holiday season when more items are sold. (As a comparison, I looked at Amazon India’s storage costs. They are a flat ₹20 per cubic foot per month. See https://sell.amazon.in/fees-and-pricing.html#es-ss-fees. I sense a Costs Matter posts lurking here but it eludes me at the time of this writing.)

Since the Amazon selling website is so easy to use, I went ahead and entered some numbers. The numbers are for the following toaster, https://www.amazon.co.uk/dp/B00UTRDQNW/, which retails on Amazon at £25 but instead of that price, I plugged in £40 for the same toaster and Amazon showed me a net profit of £3.79. (Clearly my numbers are bad but they work for analysis purposes.) Below are my estimates:

Source: https://sellercentral.amazon.co.uk/hz/fba/profitabilitycalculator/index. Search for “B00UTRDQNW”.

Assuming everything else is constant, if I don’t sell my toaster in 7 months, the toaster becomes a net loss to me. I’m better off disposing it than keeping it. Of course, everything else is not constant. Rare is the seller who can wait 6 months to realize a non-zero profit.

And those numbers explain why merchants get their unsold stocks destroyed.

But why not give off unsold items to a charity as the ITV article suggests? That is for a separate Costs Matter post.

Created by author with the aid of Figlet. License: Public Domain.

Thanks go out to Vivek Kannan for sharing this story and its potential as a Costs Matter post.