If you don't want to compare to Walmart, compare to a mom-and-pop store who stock products that they know local customers will buy, sometimes down to an individual customer level.
This is traditional stock management, pure and simple.
"To minimize [the cost of returns], Amazon said it might consider giving customers discounts" -- just like any other overstocked store.
Absolutely incorrect. The long tail of products and the size of a store has nothing to do with each other. A mom and pop store is not going to cater to a local population any better just because it is small. It's hilariously wrong to think that people's buying habits are localized or consistent based on geography.
If I need a linear carriage, a Razer Hydra, an obscure philosophy text by Merleau-Ponty, a 1/8" straight fluted HSS router bit, a jar of Mexican mole sauce, and a monitor arm mount -- where do I go? Walmart? My neighborhood mom-and-pop store? Of course not.
This is traditional stock management, pure and simple.
"To minimize [the cost of returns], Amazon said it might consider giving customers discounts" -- just like any other overstocked store.