What happens to all the returned vinyl to Amazon?

I've heard this many times, that retailers are on the hook for defective vinyl returns. My favorite local shop has no issues with returns, so I asked him, as an independant retailer, and he said it is returned to the distributor for a refund or exchange, so he's not left holding the bag. He also said that is common practice in the industry. Maybe it's different in Canada, I don't know.