Amazon Seller CentralUnder settings/Fulfillment by Amazon there are a few options that are worth being aware of.

It is very important to disable the Refurbishment settings “Refurbish Unsellable Customer Returns” as if a product is returned and the box has been crushed, the plastic bag ripped, or the packaging in some way destroyed, and the product has been placed back on the packaging in a messy way Amazon workers will make it as tidy as possible, tape up the box, and will put it back for sale with your other products. When this product is sold a second time it may look like it’s already been used and can lead to an unhappy customer and a bad review.

The setting Automated Unfulfillable Removal Settings is a tricky one. You can ask for products that can’t be sold i.e if they are damaged in the warehouse or returned, to be sent back to you. You will pay a fee for this but it’s helpful to see the product and whether it can be fixed and resold. However, you can only send the products to an address in the country they’re being sold in, so this doesn’t work if you are based in Australia and selling in the USA. It is recommended to set this to enable “Automated Unfulfillable Removals: and “Dispose” so that Amazon will automatically dispose of these products. If you ignore these unfulfillable products Amazon will start charging you storage fees for them.