Product returns have always been part of the retail equation--and an often high cost of doing business. But over the years, free and easy returns have become a new basis of competition. As e-commerce typically brings with it return and product exchange rates 3-5 times as high as those in brick & mortar stores, the growing penetration of online shopping can create more speed bumps in the customer experience, increasing costs for retailers and real ecological challenges.
Product returns have always been part of the retail equation--and an often high cost of doing business. But over the years, free and easy returns have become a new basis of competition. As e-commerce typically brings with it return and product exchange rates 3-5 times as high as those in brick & mortar stores, the growing penetration of online shopping can create more speed bumps in the customer experience, increasing costs for retailers and real ecological challenges.
In this episode we dissect what's driving returns, why it matters and what can be done about it. We speak first with Scot Wingo, founder of Channel Advisor and CEO of Get Spiffy, who along with his podcast co-host Jason "Retail Geek" Goldberg, made "Shippageddon" part of the retail zeitgeist. Soon after "Returnageddon" took center stage. Then we bring on David Sobie, co-founder of Happy Returns, a fast growing company that seeks to make the end-to-end returns process beautiful for shoppers, retailers and the planet.
After our interviews we jump into our fun new segment “Remarkable or Forgettable?” where we give our hot takes on a selection of retail headlines, and deem them wow-worthy, best ignored or somewhere in between. This week we talk about Five Below, which apparently didn't get the retail apocalypse memo, and is opening over 170 stores this year, Poshmark's plans to get into the pet resale category, Thrasio and Branded's big capital raise to roll-up Amazon marketplace sellers, Walmart quarterly earnings, Sephora's inclusive incubator program and the strong US retail results for January.
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The Ticking Time-bomb of eCommerce Returns
Scot Wingo is an entrepreneur who successfully started four startups and exited three (so far):
Stingray Software - 1995-1998
-sold to Rogue Wave Software
AuctionRover.com - 1999-2000
- sold to Goto.Com/Overture - now part of Yahoo!
ChannelAdvisor - 2001-present - IPO'd in May of 2013 - NYSE: ECOM
- Leading software/service business for Fortune 2k selling on eBay as a new channel.
Get Spiffy - 2014-present
- On-demand car wash and detailing business currently in Raleigh, Charlotte, Atlanta, Los Angeles and Dallas
Specialties: Internet and related technologies/business model experience. eBay, Yahoo!, Amazon, Overture, Google and of course, washing cars!
David Sobie is CEO & Co-Founder of Happy Returns. Forward-thinking brands like Everlane, Rothy's, and REVOLVE choose Happy Returns. Together, we retain revenue, reduce costs, give shoppers choice, and make their supply chains sustainable—ultimately making returns beautiful for brands, shoppers, and the planet.
Before Happy Returns, David served as the Chief Marketing Officer at REVOLVE, leading all online and offline marketing, branding, acquisition and business development. Previously, he led Marketing and Business Development for HauteLook, a flash sale pioneer acquired by Nordstrom, and held senior roles at eBay Motors and others.
For more information about Happy Returns' returns software and reverse logistics, visit www.happyreturns.com.
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption will be released April 13th and is now available for preorder at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks and The Food Professor with Dr. Sylvain Charlebois. You can learn more about Michael here or on LinkedIn.
Michael LeBlanc
Welcome to the Remarkable Retail podcast, season two, episode four. I'm Michael LeBlanc.
Steve Dennis
And I'm Steve Dennis.
Michael LeBlanc
And this episode is sponsored by the Poirier Group. Steve, I am really looking forward to this episode. I love talking about returns as funny as that sounds, and I was joking off mic, maybe we should call this episode "Many Happy Returns'. But in my experience, you know, while returns can be a retailer’s nemesis, a return process well done is brand elevating, and a customer relationship building. But it's complex, right?
Steve Dennis
Yeah, I mean, it really is. I mean, I think you and I have been dealing with returns and exchange issues for probably as long as we've been in retail. And there are just a lot of categories that have high rates. We've kind of created this monster of making it so easy to do returns, but it drives a lot of costs. But you're right, I mean, there's a real opportunity for retailers to delight customers by handling them. But you know, it's these age-old issues. You know, on the one hand, you want to work on the root cause of the returns, right. Like, if the, if the reason for the returns is bad packaging, or poor fit, or poor quality or whatever, like that, that's certainly something you want to root out as much as possible. But, to the extent they're inevitable, just because not everything is going to work out or customers buy multiple versions of the same thing, then then you want to make it as easy a process as possible, and then try to figure out as we, as we talked about in the episode, what's the best way to make that fast, easy, and hopefully less expensive for the retailer.
Michael LeBlanc
Yeah, and my experience has been the more you focus on it, the more you discover that you're in control, as a retailer, more than you think. In other words, as you were saying, you know, if you can reduce elements, and that could start right on the website, if we're talking about online return. Good picture, great description, great fit size. And, so your, you can do many things that will meaningfully both enhance the customer experience and reduce return. Because they're both nice mutual win for both you and, and your customers.
Steve Dennis
It can be you know, a lot of times, and I know this has come up a few times on the podcast so far is I often advise clients to think about the whole customer journey as a way to unlock opportunities to take out pain points and, and create a wow experience. A lot of times, I'm not sure retailers think as much as they should about the return process, you know. It tends to be more website conversion or, or in store experience or what have you. But, but it's a big opportunity. Yeah, and it really requires to go through there and dissect each part to understand where the opportunities are.
Michael LeBlanc
Now in your, in your history, from a strategic perspective, I've always been on the, this edge, knife's edge, if you make it too hard to return, and you kind of potentially could reduce your conversion rate. People are like, ' Forget it, I'm not going to return it'. Alternatively, if you make it too easy, then you've got you know, too high returns. And it just seems like a good thing to do and easy thing to do. Where do you sit on that? Like, where's that fine balancing point?
Steve Dennis
Well, I think it is complicated. One of the things which is starting I guess, to get more attention is to really see if you can steer clear of a one size fits all policy. Now, that doesn't always work well, with the lawyers or what you say on the on the website. But clearly, there are some customer relationships that are so valuable, that you don't necessarily mind particularly,
Michael LeBlanc
Right.
Steve Dennis
that they return at a high rate, because overall, it's going to work out for you. Then on the other hand, you've got customers that really abuse the policy, or, as we touched on a little bit in the interview, that basically are renting the product, even though it looks like they bought it. So, so I think, I think there's a nuanced view. And fortunately, there's some technology that's starting to come out to try to track down these serial abusers or at least make it easier to analyze what the root drivers are.
Michael LeBlanc
The good thing about e-commerce of course is, you know, who ordered it and you can kind of track and index their return rate. So, it does get you past, you know, the known, unknown, so to speak of mass people just returning on, not attached to an individual. And as you say, there's some there's some technology coming out about that.
And you know, why don't we just jump into our first interview because we're talking with Scot Wingo, and he's coined this term, "Returnageddon'. And really, it's the culmination of many things as the COVID era brings, but it's this increase of pace of returns for a whole bunch of reasons. So let's have a listen to that.
Steve Dennis
While we're excited to welcome Scott Wingo to the Remarkable Retail podcast, Scott, our custom is to always start by asking the guest to tell us a little bit about themselves and the work they do.
Scot Wingo
Hey, Steven, Michael, thanks for having me. I'm excited to be here. I'm Scot Wingo. And I am a serial entrepreneur from the Research Triangle Park area. Most relevant to your listeners, I started a company called ChannelAdvisor in 2001. So, it's been 20 years. So, it's seems like just yesterday, but time flies when you're doing startupie stuff.
And the general idea of ChannelAdvisor was that, you know, we believed there was all these companies focused on creating your websites. We all know and love Shopify, Magento. At that time, they didn't exist, but there was a bunch of another set. And we thought, you know, no one's really solving this problem of what if you start to sell things off of your website across the internet at areas like marketplaces, comparison shopping engines, etc. So, that's, that's ChannelAdvisor. And what we started in, the short story there is started 2001. Raised about 90 million in venture capital. Went public in 2013. And then after a couple years of running a public company, I kicked myself upstairs to the board, and started a new company called Spiffy, and that's on-demand Car Care.
Steve Dennis
Excellent. And you're also the co-host of what many people are saying is the second-best retail podcast, you want to just mention that briefly.
Scot Wingo
Sure, always fun to be on another podcast. I feel like I'm cheating on Jason. But he does it plenty of times. So, yeah, so started, the genesis of that was I was on the board of shop.org, which is kind of the, the digital area of NRF. And there was this guy I got along with really well, Jason Goldberg. He is a store's payments, grocery guy, and I am an e-commerce marketplace guy. And we would, we would go and have a dinner or drink after these meetings. And I, off the cuff, said, about five years ago, 'Hey, we should do a podcast because I learned so much about payments from you. You seem to learn about marketplaces from me that would be interesting for people to kind of listen in'. And the next day a mic arrived. And we've been doing I think we just we just crossed 250 weekly episodes. So,
Michael LeBlanc
Wow, congratulations.
Scot Wingo
We have done that for a while.
Michael LeBlanc
Yeah, congratulations. That's fantastic. Yeah, it's a great podcast. Jason has been on both are both Remarkable Retail and my other podcast, The Voice of Retail. So, fellow podcaster. That 250, that's a very remarkable in and of itself.
Steve Dennis
Well, actually, it ties a little bit to your podcast. So, one of the reasons why we want to have you on was certainly the great industry background you have and all the insights you have on all things retail and e-commerce, but in particular, you and Jason started talking about this term 'Shippageddon', which then morphed into 'Returnageddon'. But maybe you could just start with telling us a little bit about what shippageddon was about and then we'll, we'll shift the conversation to returns.
Scot Wingo
It started when Amazon launched their DSP program, which is delivery service providers. Started looking at that it's kind of interesting, it's kind of like, 'Why is Amazon doing this?' And as I dug into that, I heard from some people that, that used to be at Amazon, people that Amazon would never tell you this, that Amazon had done the calculus, they essentially looked and they saw, you know, if you charted out the lines of USPS, which is not really adding capacity, then you've got UPS and FedEx, they're growing at about 10% or 8 to 10%. And then you have e-commerce growing at 15%. Amazon has like half of eCommerce. Amazon could look at that data, and they can see a day where they would use all the available capacity to deliver stuff. So, so they started, you know, hedging that and building their own direct to consumer thing.
So, then the pandemic hit, and Jason and I were kind of openly just discussing, you know, 'If Amazon saw that, then you know, what's going to happen? You're, we're in this elevated period of a pandemic, where we went from 15% growth to like 45% growth in that Q2 of 2020. How much capacity is there?' And we started doing some back of the napkin math, and it felt like we were at capacity by like August.
So, then it was pretty obvious to then say, 'Well, when we have, when we have the normal surge of the holiday, what's going to happen?' And you know, I don't think anyone's really thought this out. And then, interestingly enough, sure enough, right, then, you know, almost a week later, we started to see FedEx and UPS, like really do some weird things. Like having weird conversations with people. I think they had done the math around the same time. And thus, shippageddon was born. So that the general concept was that, you know, the available capacity to ship products is really maxed out generally right now. And then you had a pandemic and holiday, and it gets past 100%.
Michael LeBlanc
Now, the other side of that is a part that this episode is about and that I actually spent a lot of time focusing on in my in my career, which is reverse logistics, the returns’ part.
Scot Wingo
Yeah, and you know, I'm a software guy and not a traditional retailer. So, I've had to kind of learn a lot of this stuff that, that you guys intuitively know. And I wasn't really, returns weren't really on my radar until, at ChannelAdvisor, you know, we part of, part of what ChannelAdvisor does is we help retailers open up new channels. And it's great and it streamlines things and great (inaudible) sales. But one of the only negatives is now you have even a bigger return problem because now you have these separate flows of reverse logistics, right.
So, so let's say you're a mythical retailer, and we get you to sell on eBay, Amazon, Walmart, Marketplace and then maybe like, I don't know, Etsy or something. You know, one of the unintended consequences of that is, now you have an Amazon way of handling returns, an eBay way of handling returns, obviously your website still maybe even store and then, you know, and then Etsy, etc. So, yeah, so that's when it first came on my radar.
And you know, we did pretty what I would call it kind of a software solution. So, we would just try to normalize it. So at least when the return came by, it was a generic ChannelAdvisor return, meaning from another channel. And inside of there, if you wanted to pick it apart, you could tell 'Okay, it's an Amazon order' or not.
Then it got even more complicated when Amazon launched FBA, because then you had this whole, you know, if it was an FBA order, it was handled different than if you fulfilled it. So, so that was kind of my entree into the world of returns.
And then, you know, when we started talking about shippageddon, it's funny, I went ahead and bought the domain name for returnageddon, because, you know, you,
Michael LeBlanc
Of course, you did that.
Scot Wingo
When you model out shippageddon, you know, there's like 8 to 10 million packages that didn't make it by 12, 25, 2020. So then, you know, now it's going to take like another two weeks for those packages to work through. Well returns, they don't wait for that, right. So, you know, 12, 26 the returns start coming back. So, so then this whole supply chain, if the forward side is slammed, the reverse side is going to be doubly slammed. So, that was that was the kind of tongue in cheek reason for returnageddon.
Michael LeBlanc
So once, once you kind of put that out into the universe, so to speak, via the podcast, I mean, generate a lot of, a lot of buzz, did you get any feedback from, from the retail industry or from, from the players, they say, 'Yeah, you nailed it'. And, you know, what was the, what was the feedback?
Scot Wingo
Yeah, we definitely nailed shippageddon, or I should say I did. Jason thought it was going to impact big companies more. And I was kinda like, that doesn't make logical sense to me. Cause they can go and they can say to FedEx, "look, I spend 8 million dollars shipping stuff with you, you're going to give me capacity'.
Michael LeBlanc
And, they are in a little better place to absorb the shipping premiums, right. These surge capacity surge charges, that are still in place actually, I think which is, which is boggling some retailer’s minds is we're well past peak, as we used to call it, and but, you are still getting surcharges for volumes. It's a, it's a bit wacky, right?
Scot Wingo
Yeah, when your surcharges become prices? I don't. I don't know, at some point that they're the same.
My theory was, it was gonna be the small seller because, you know, at ChannelAdvisor, we deal with these folks. They largely rely on USPS. You know, USPS had no prep, or no ability to know what was going on. And they took all the packages FedEx, and UPS wouldn't take too. So. It was, they ended up being like, you know, the real, the real problem, problem, the bad chain in the link, if you will, link in the chain.
And, yeah, so, it was the small business. So, I think we nailed that. And the small businesses were just like, really frustrated, and they had upset customers. And so, USPS got so far behind, they wouldn't even like, you know, scan the packages. So, the packages were stuck in this limbo state of, the retailer thought they had been put in the system, but USPS hadn't. So, then you call the retailer, the retailer's kind of like, you know, 'Ma'am, I know, I know it looks like that we haven't shipped it. But we have'. You're in this like, really, really hard place as a customer service person with that?
Michael LeBlanc
Do you think that around shippageddon, and then returnageddon, so to speak, that I've described, curbside and store returns as a safety valve? Do you, do you see it that way as well?
Scot Wingo
Yeah, and you know, I think, I think it's interesting because for the longest time, those of us, and I'm guilty as charged, in e-commerce have beat up folks that you know, you get this boat anchor around your neck, you old sports store, guys. Steve gets a lot of this, this heat on, on Twitter on the regular basis. You know, we would, we would jokingly say to people, 'Wow, you build all those stories, and you know, well, they're kind of useless'. And then, you know, then the story guys did ship from store and you're like, 'Okay, that's smart'. And then, you know, I think, you know, with COVID, the stores were the saving grace for a lot of those, folks.
So, Amazon won by having their direct channel to the consumers. The people that were really hurt were pure plays that didn't have stores and weren't Amazon. So, that they were really kind of, you know, the path from them to the consumer was really hard. And then, if you had an omni channel, or harmonized, or whatever you guys want to call it, you know, store and digital, it was a good way for customers to still be able to not only buy stuff but return it.
Steve Dennis
So, at some point, Scot, as I recall, you're a bit of a Star Wars geek, is that right?
Scot Wingo
Yes, absolutely.
Steve Dennis
So, I did write something a while back, called 'The Store Strike Back'. And I think we could do like a whole all Star Wars themed episode perhaps around that. But let's leave that for another day.
So, with regard to returns, in particular, there's an aspect of what I think we've seen, which has been coming for a long time. If I, if I go back, and I think Michael's had similar experience, if I go back to even my mail order catalog days, really early in my career, but even more recently, with the growth of e-commerce. I think just about every retailer was seeing online returns and exchanges be way higher than store purchases. So, it just seemed logical that as online grew, that returns, we're going to continue to grow. And, you know, obviously, the pandemic has caused this, this huge surge. But isn't a certain amount of this just to be expected. And we also kind of created this monster because so many retailers have made free and easy returns just kind of table stakes for doing business,
Scot Wingo
We have kind of created it and, you guys would know better than I do if the store return rate is lower than e-commerce. I think it, I think if we looked at it, the kind of the shot heard around the world in the return’s world is the launch of Zappos, right? So there, they were out there, Tony Hsieh and team, fighting against Amazon. And they said, 'How do we differentiate?' And they offered three, 365 returns. Which, when you buy shoes is really, really a big differentiator, because, you know, for example, my wife has a shoe size that can fit three different shoe sizes that are out there. So, she you know, she commonly from Zappos will order two or three pairs, and it's really a sizing thing for her.
So, you know, so that then started this kind of, that was the, I bet if we turn it out, there's this bend in the curve. And Zappos really caused that. And then that made all the other shoe people do it. And then it kind of leaked into apparel to a good degree. And it's largely a fitment thing, interestingly, I don't think like electronics has that different of a return rate between online and stores or, you know, pets or some of the other categories. It seems to really be around apparel, and it's the e-commerce folks offering it as a fitment solution, interestingly enough.
Michael LeBlanc
Yes, some of some of it's a fit issue. Some of it is what we call bracketing. In other words, I'm not sure like, what you describe with your wife, I'm not sure if it's a, you know, four or five, so I'm going to get both.
You know, what's interesting is this behavior that organically we would think online returns are higher. Just because you don't get to see, touch or feel it. But what are you hearing? Are you hearing similar things from, from, you know, through ChannelAdvisor type clients? And are they seeing upticks in returns? Or what's the latest?
Scot Wingo
Well, COVID was interesting. So, I would say returnageddon, it was the most returns anyone ever seen. But it was because it was the biggest holiday season anyone ever seen. I think we, I think it was actually not quite as bad as people expected. Because the categories, you know, this kind of fashion and apparel category, is really been under, way, way underwater due to COVID. Because, people aren't going to events. Everyone's just kind of laying around in their pajamas. I know, all three of us are probably wearing our pajamas right now. And, and
Steve Dennis
I'm wearing a tux, I'm not a farmer.
Scot Wingo
Okay.
Michael LeBlanc
The other fun thing you mentioned and is just, what we call, I used to work for The Shopping Channel in Canada, which is basically QVC or HSN. And, we had what we called the apparel rental program. You know, those customers would have a special event, get a dress, wear it, return it saying it didn't fit, you know, there's wine stains on it just kind of nonsense. It's interesting. You mentioned less events going on. So less apparel,
Steve Dennis
There's also less reason to rent apparel, too. But, yeah, so one thing maybe we can, we can noodle through a little bit is I think, I mean, obviously, we've got this amplification of online shopping that's happened by virtue of the pandemic. And to your point, Scot, the mix of what's being bought online, is a little bit different than we've historically expected. But don't you think going forward, unless something's changed, either in terms of consumer behavior, or regulation, or technology, or something that, under any scenario, online shopping is going to continue to grow? And presumably, at some point, the mix starts to shift back more towards apparel and other categories that are, you know, 25, 30, 35% return rates online. So, I guess, do you do generally agree with that premise? And then, are you seeing anything that is really working around the horizon that might really start to deal with the returns issue and all its costs?
Scot Wingo
I do agree, I think, you know, I think the at some point, we're gonna get past this pandemic, and there's all this pent-up money. So, that's good for all of us. Because the savings rate is like through the roof, because people don't have anything to spend money on. And then people are gonna want to go out and do stuff and, and they're gonna, they're gonna be looking at a, you know, a closet that's 18 months old, and I think there's gonna be like a people call it the roaring 20s, if you will. So, I do think that's on the horizon. I don't know when is the problem. So, that's, yeah, I wish for listeners, I could tell you it's gonna be this June. That would be my preference, but we'll see.
And then, you know, have I seen a solution? It's interesting. I've been in this business for like 20 years. And I can remember that there's this company called Returned Bui, B - U - I. And they were a logistics kind of solution. And I went to tour their factory and it was like this $50 million, state of the art factory with conveyor belts and everything. And while I was there, I saw three returns go through. And I was like, this is, this is not gonna work out well for you guys. It was like a Barbie with its head off. And it was just like, their whole thing was like, you know how to like re-sell them for the
Michael LeBlanc
Reclaim it, yeah, yeah and we'll put it back together.
Scot Wingo
And I was like, Alright, you get up what a $5 Barbie and you know, how are you gonna put $50 of labor into that thing to put the head back on. But anyway, so, I've seen solutions that are kind of like what I would call piecemeal. So, I've seen software solutions. I've seen, like consumer solutions, so you know, kind of like, bring your return here, kind of a thing.
But then like, there's no and then the third leg, I think is important is the logistics piece, because at some point with logistics, you get more, you know, there is an economy of scale. And if you think about it, the whole returns landscape is just spread across everybody, we're all doing our own thing. Everyone has that dirty corner of the warehouse, that's the returns area, and no one goes back there for fear of, you know, 20-year-old, I don't know, thing kind of attacking you.
So, yeah, so I think if someone's going to solve this, you kind of have to take on all three of those. And I'm excited to listen to the other guests, because I do hear a lot of buzz. There's been a couple 100 million dollars invested in this space recently. And I do think there's a new generation of vendor with a new approach. So, I'm, I'm excited to learn more of myself about, about what's going on there and what you guys can surface.
Steve Dennis
Yeah, it's certainly a hot area. And, but it's complicated. I mean, I think Michael and I, I know have dealt with returns for probably the most, you know, the bulk of our career. And it's not like there's probably any one silver bullet that's going to attack it. But
Scot Wingo
Yeah, and you know, Amazon, they can have their own because they're at a certain scale, they can have this massive solution. It's kind of interesting, seems like, logically, FedEx and UPS should have solutions for this, that maybe they do that I'm not aware of. But just because you know, since the trucks already in your neighborhood, it's kind of the least expensive way to pick up my return is like when the guy is dropping off the next thing. That's how I am.
Michael LeBlanc
It's, it's a tough business, though for them to be in because it assumes a lot that the consumer, it assumes a lot of care that consumer would take to package that return up right. So, the consumer walks to the end of, the end of the curb and throws him something that's not in a box or half duct taped up. And then it's, it's a, it's a disaster in the back of the truck. So, I think they've all assiduously avoided taking returns because it is especially special and specialized thing and it would just slow them down I, that's probably why they, they might shy away from it.
But listen, it's been great. It's been a great setup, and great to kind of open the door on this, this great discussion, because we could, you know, we will and, and continue to, you know, tap into different insights. So, thanks for opening the door on us. And congratulations on, on two great URLs, shippageddon and returnageddon.
Scot Wingo
Yeah, yeah, and I just grabbed chippageddon, and we'll save that for another podcast. Thanks for having me, guys. I really enjoyed the discussion. And yeah, look forward to hearing how you guys solve the returns problem.
Steve Dennis
Give us a few weeks.
Michael LeBlanc
All right. Thanks, Scot,
Scot Wingo
Will do. Thanks, guys.
Michael LeBlanc
We'll be right back.
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You know, Steve, that part that we just listened to that frames that in as much as with the great acceleration as our friend, Carl Boutet would say, greater e-commerce means greater returns.
Steve Dennis
Yeah, well, I think it's hard to understand completely is all these different dynamics that are going on right. The mix of products that are being bought. People's hesitancy to go to the store. It's kind of a noisy, particularly noisy world and in the world, the returns right now. So, I think as we hopefully start to get out of this COVID era, we'll get a little clearer sense of what trajectory we're on and what are going to be some of those persistent issues.
Michael LeBlanc
Well, our next guest David Sobie, from Happy Returns, really is, that's the focus of his organization, is you know, as its named Happy Returns to kind of solve this, square this circle of returns process that works for everyone. So, he's got some great insights around what consumers and customers are expecting. And how retailers can, can deliver it. So, let's have a listen.
Steve Dennis
While we're excited to welcome David Sobie, the CEO and Cofounder of Happy Returns. David, thanks for joining us. And I wonder if we could just start out with you telling us just a bit about yourself, and the work you do at Happy Returns?
David Sobie
Well, first, thanks for having me. Excited to be here today. So, I'm the co-founder and CEO of Happy Returns. My whole career has been in e-commerce. And I've been at this for about five and a half years.
And, as you probably can guess from our name, we are tackling the painful challenge of returning products purchased online. We describe ourselves as a return software, and reverse logistics company, that is really the operating system for e-commerce returns. And so what we mean by the operating system is we provide return portal software for merchant websites connected to a nationwide drop off network, 2,600 return bars, which are physical places where shoppers can return products, box free in person. And then the reverse logistics to actually get the items back from those drop off points to the merchant’s warehouse or to the merchants, 3PL. In our case, is taking the form of two processing hubs. So, we have an East Coast hub, and a West Coast hub. And those two hubs support the 2,600 spokes in our network, or the 2,600 drop off points. Those three things working together.
And then of course, the brand Happy Returns, you know, trying to build some recognition and some brand equity in the idea of solving what is for many people The worst part of shopping online.
Steve Dennis
Can you just give us your sense, kind of big picture, why you see returns as such a big opportunity for the retail industry?
David Sobie
Yeah, I think it comes down to the shopper experience and the impact that can have on shopper, lifetime value at a merchant. And then, how important this is to making money and profitability.
You know, from, from a customer perspective, returns are just, they're a part of shopping online. I think there are a lot of limitations, when you're buying something, you know, online versus in person, you know. Pretty common to have returned rates three to four times higher in e-commerce than in brick-and-mortar stores.
What I think maybe is underappreciated is how important returns are to the whole customer journey. You know, there's all kinds of data that suggests that whether or not you anticipate there to be a return has a really important, you know, it's a deciding factor on whether you're even willing to buy something online or not. It's a huge has a huge impact on conversion rate. I think the number is something like 85% of people read a retailer's return policy before checking out. What are they trying to do? Well, they're trying to figure out how painful will this be if it doesn't work out? And then, and the huge impact on customer retention? I think, again, the numbers like north of 80% of people say that they won't shop again from a merchant if they have a bad return experience. And so if you think about it from a customer journey perspective, you know, it impacts whether or not someone shops online. It impacts whether or not they check out at the merchant’s website. And then huge impact on whether they ever buy again from that merchant. So, really important from the customer perspective.
From a merchant perspective, wow, huge impact on profitability. And, and I think this, this trend is, I mean, I'm old enough to remember when free shipping was a perk in e-commerce, you know, now it's table stakes. And, and I think free returns is kind of following that same path where, you know, shoppers expect returns to be free. You know, we all know that they're not free, it just means that the retailer has to subsidize them.
And so, in an environment where returns are free, really having your arms around the cost, and the cost of that subsidy is important. And, what's taken place in the last, well, in the last five years, but really accelerated in last year due to COVID, is just more expensive shipping. And with logistics costs, you know, going up, the idea of providing a free return option via the mail has just gotten, you know, almost impossible for retailers to manage and still, you know, have a hope to be profitable. So, that's kind of where we fit in is, you know, trying to help them, not only on the customer side, but also on the cost side of returns.
Michael LeBlanc
So, what are you seeing? Like, are we seeing this kind of two-phase problem, or two prong issue? One is just organically there's more sold online, therefore there's more coming back. Is that panning out? And two, is there this returnageddon? In other words, this pent-up demand people are holding it longer and maybe they can't get to the store?
David Sobie
Yeah, so I think where the conversation started, we are finding to be true meaning you know, more e-commerce means more returns. So, we just came off of our best return season ever. December returned volume at Happy Returns was up, you know, 50% versus November 2020. So, you know, massive increase. And in our business, you know, there are a number of reasons why. But I think that this idea of more online shopping means more returns is definitely proven to be true.
That said, I think, you know, we work with all kinds of merchants, but have a core focus on apparel and footwear. And what, what's interesting is that, you know, when I peel back the layers on our growth, you know, when I look at some of the merchants that we've worked with, for a long time, that the sort of rising tide of e-commerce adoption, and, you know COVID didn't impact all retailers equally. Especially, you know, folks that that sell higher end fashion. You know, you don't need a high-end pair of heels, if you're not going out anywhere, right. Or you don't need, you know, a dress, if there's, if you're, if you're wearing a dress to an event, and they're no events because of COVID, you know.
And so, I think that, for some of our core merchants, they're actually down year over year, despite this push to more e-commerce. So, where we sit, you know, obviously, we provide, you know, in person returns versus the mail. And one of the really interesting trends we've seen is a much higher adoption of in person. Which is kind of counterintuitive, if you think about it, you know. It's the very idea of being in person seems like it would have more risk in this environment.
But what we found is that, you know, for a lot of people, that very act of returning by mail involves a few steps, and at a time lag that they're not willing to undertake right now. So, so starting with printing. A lot of people have access to printers at the office and not at home. And so the idea of saying, a return process that starts with 'Print a label and put it into the mail'
Michael LeBlanc
Print a label here, yeah, yeah.
David Sobie
It's just hard to do, right. If you if your printers at the office, and you're not going to the office, that's a harder task than normal. And then the other is, I think people are really concerned about shipping times right now. You know, the idea is, if I put this return in the mail, and I send it back to you, how long is it actually going to take to get to you? And then when it gets to your warehouse, like, how long is going to take for it to be for my, my box to be opened and to get my refund back? So, so we've actually seen higher adoption rates of, you know, in person drop off to our network than any other time, that we believe, you know, is sort of driven by this idea of, 'You know, man, I just don't have access to a printer. And I don't want to wait', you know, that uncertainty. You know, and I think, I think we all have experienced this on the, on the, on the front end, on the outbound side. You know, like, I bought something in the spring, and it took months for it to get to me,
Michael LeBlanc
Right.
David Sobie
Yeah, I think everyone's kind of mentally doing that, that on the reverse side, saying, 'If I ship this off, who knows how long it's gonna take via carrier to get back to the merchant'. So, I think those things are factoring in, in our case, to seeing higher adoption of in person.
Michael LeBlanc
And just one thing did I hear right that you can buy an item and when you return it to your physical locations you don't need the original box or packaging? Do you have to package it up? In what's, you know, just drop it in a shoe box? Just tell me a little bit about that. Because that's another barrier, right to shipping things back in the mail.
David Sobie
Yeah, yeah. So, we're, and have been, since the beginning completely box free. So, the way Happy Returns works is you start online on the merchants website. There's, there's typically a return portal that's powered by our software. You identify the item you're returning, and we present you with options, you know, yes, you can mail it back, if you want to print a label and deal, and deal with that, you know, get a box, etc. Or you can get a QR code and drop it into a Happy Returns location. And in doing that, you don't need to prepare anything, you just bring your QR code and the item in, in person. So, it's, you know, printer less, it's box free. You know, you simply scan the QR code, they'll check the item in, and then when the items are checked in, that's what triggers the refund with the merchant, or that's what triggers the exchange order if you're doing an exchange.
And so, it's, it's the easy way to think about it is by online returned to store, but for retailers without stores. And so, the store, you know, that, you know, Happy Returns and our locations provide, essentially the store in that equation. Meaning, a place to drop your items off, you know, a place check your items in. And importantly, you know, the triggering of the refund or exchange.
Steve Dennis
You know, part of what you were getting at was there a lot of complicated, underlying reasons that we've seen for years that cause high return rates, cause extra cost for the retailer. Just going back for a second in terms of what's going on and COVID right now, how much of what we're seeing do you think is just kind of noise that's going to exist in the system for you know, who knows another six months or so, and how much is really just this underlying reality of the growing returns and exchanges? Because, as you said earlier, we've made it incredibly easy, right. We've created this monster as a retail industry to a certain degree.
David Sobie
Yeah, I mean, I think, I think e-commerce adoption is a one-way street. I don't think people are going to go back to you know, if they've been able to buy things online and had the convenience and speed of that, I I don't think that all of a sudden, we're gonna see e-commerce decline, for example, in the future.
You know, with regard to the return and exchange challenge, I mean, that we, we believe that, you know, until technology comes out that the changes, the reasons why people return or until, you know, perhaps there's some AR, VR innovation that hasn't happened yet that makes it easy to try things on. You know, the returns are just part of the experience. And so, you know, the right answer is not to make it more complex and harder to try to reduce, you know, returns, you know, it's really to just embrace it and say, 'Hey, this is this is part a shopping online'. And because it has this impact on, on customer lifetime value that, you know, what merchants should be focused on is not making it hard to return, but making it more cost effective for themselves to subsidize it.
And so, you know, we didn't talk a whole lot about this, but you know, in our model, what happens when the items get dropped off at one of our 2,600 return bar locations is that they get aggregated with the returns from other merchants that we work with. So, picture one tote that's filling up all day with returns. You know, so a specific return bar might take in 20 different returns today from 20 different merchants. They're all going to travel together in a commingled aggregated shipment from the drop off point to the processing hub. So, everyone's getting the benefit of aggregation there and driving down the shipping cost per unit. At the processing hub, we, we sort by merchant. We palletize, and we ship in bulk back to the either the merchant’s warehouse and the merchant's 3PL. And so again, by using aggregation, and the simple physics of multiple items in the box, rather than individual shipments, we're able to save on the cost.
So, so that's kind of step one, in terms of addressing this problem, is not let's make it harder, but let's make it more cost efficient. Where we're headed, and what's kind of exciting about the returns challenge in general is that, you know, we're touching, all these items are passing through our facilities now. And we're having some really interesting conversations with our merchant partners about using those facilities that are handling returns as nodes in the merchant’s fulfillment equation.
And so, you know, I think that the days of, you know, if you're competing against Amazon, and Amazon has inventory in every state in the nation, you know, that's how they achieve same day or next day shipping. It's, it's not by shipping stuff really fast. It's by having inventory positioned. And so, you know, what we're talking to our merchant partners about is well, can you accomplish the same thing with your returns, and start thinking about your returns as another node in your fulfillment network? This is a chance to both decrease your cost because you're cutting a whole leg of shipping out, but also increase the speed in which your customers get items.
And so, I think that's, you know, I think, looking ahead, the idea of reverse logistics, married with forward logistics as a way to more thoughtfully, you know, deliver items, I think is definitely what we see in the future. And, you know, what I think we're probably most excited about is, you know, going from a cost center, and trying to reduce that cost to really starting to think about it more from a profit center when you when you think about us, starting to fulfill orders.
Michael LeBlanc
So last, last quick question for you. One, or two tips that retailers should be doing today, if they're not to help them manage, effectively, this growth in returns. What are the top two things that when you meet with retailers, you say, 'If you're not doing these two things, start doing them today'.
David Sobie
Yeah, I think the first one, it's going to sound so simple, but just having clarity around your return policy. You know, as I said at the outset, everyone who shops with you online is going to read this policy before they check out. I can't tell you how often I read a return policy and I'm like,
Michael LeBlanc
I can't make heads nor tails of this
David Sobie
I don't get it, right. It's complex, it looks like, it looks like somebody in your legal team put it together. You know, make it as easy as possible to explain to folks what's going to happen if it doesn't work out. And I think that this kind of goes with people for a long time thinking, well, if I don't talk to you, if I talk about returns it somehow suggests that I don't have good products, or I'm not standing behind them, or I'm you know. It's like, just get over that. Like returns are a part of e-commerce. Make it easy for people to understand what their options are, you know, it would be my sort of first thought.
My second is to just recognize that shoppers want options. Think about the options we give people in outbound shipping, right. I know, do you want it, you know, here's sort of standard shipping, here's accelerated shipping, you know, maybe you can have it shipped somewhere else for pickup as opposed to your home. Like, people want options in returns as well, all right. And one option, you know, hey, you have one option that you, you can do that. I just don't think cuts it anymore.
So, if you have stores, you know, certainly promote 'Buy online, return to store'. You know, if your only option is the mail, I think that, you know, I would really encourage people to think about alternatives. And p.s., you know, obviously we have a vested interest in saying that, but don't believe us, like, go look at what Amazon is doing. Because, if you go to return something on Amazon, what you would find today is four or five different options that are not just put it in the mail. You know, return to Kohl's or return to the Whole Foods. You know, return it to the UPS store, or return it to an Amazon Store, returning to an Amazon locker, right. All of those are going to be promoted before the idea of print a label and put it in the mail. Why is that? Well, Amazon understands the same insights that we do, which is the customers want choices, that to tackle the cost side of things, they want customers to bring the items to them.
You know, in logistics, it's the idea of getting the first mile free. You know, why is that? Well, because when you make it easy, people are more loyal to you. And when you make something that is as taxing as a return, a simple process, people are going to shop more. And, so you know, again, don't believe the company called Happy Returns, but believe the guys in Seattle and look at the approach that they're taking to solve this problem. It's in person, it's box free, it's making it easy for the customer.
Steve Dennis
Well, thanks David so much. It's, it's great to get your perspective on it. I think whether we like it or not, we'll be talking about returns a lot more this year, and probably for years to come. Just part of the whole retail equation. So, thanks so much for joining us.
David Sobie
Terrific. Thanks for having me.
Michael LeBlanc
All right. Well, we're back with our 'Remarkable or Forgettable?' segment, the very popular segment that we've introduced this year in season two, Steve. We've got a number of stories. Let's start with Five Below. They're opening up 170 to 180 stores. What do you think?
Steve Dennis
Well, I'm not sure how many folks even know about Five Below because they've kind of come out of nowhere. But they're, they're almost up to 1,000 stores now, or over 1,000 stores. And I think they're running at about $3 billion. But they just planned or announced plans to open 170 to 180 new stores this year. And I don't know if this is really remarkable, in that I think you and I have discussed many, many times that physical retails still not dead. And we're seeing lots of people, open stores, but this is certainly a pretty bold move in the face of the pandemic and the general everything going to e-commerce narrative.
Michael LeBlanc
Alright, Poshmark is going to the dogs, what's going on there?
Steve Dennis
So folks may be familiar with Poshmark, one of several resale, secondhand clothing companies. They made a big splash last month with their IPO. Valuations gone up, I think it's doubled or something in its first few weeks. But they announced this week that they are going to be doing resale of pet related items. And I'm going to put this more on the forgettable side, I think it's certainly interesting and logical, for companies to look at adjacent categories. Poshmark has already acquired these customers. And so what else can they work with these clients on, and pets are logical, but
Michael LeBlanc
Categories, that categories on fire. The pet category is on fire.
Steve Dennis
It is, but you know the reason why I think it's forgettable is in the scheme of things, this is a very minor category. I don't think it's an obvious resale category in the way that apparel and accessory fashion is. So, interesting, but I think ultimately, we're not gonna be talking about this one next year.
Michael LeBlanc
You know, I'm really interested by watching and observing how the marketplace is becoming so big and FBA, Fulfillment by Amazon. Thrasio and Branded raise huge amounts of money. What is going on there?
Steve Dennis
Yeah, this is really just hitting my radar screen. I wasn't paying very much attention to these two companies. Tharsio raised 750 million, on top of a couple 100 million I think they raised in the last year maybe. And Branded raised $150 million. And what these guys are doing is a roll up of these Amazon resellers. Really trying to consolidate them and I guess leverage scale and scope. So, a lot of interest in this category. And yeah, if you look at what's going on and has been going on at Amazon the Marketplace, and Fulfilled by Amazon piece of their business is, according to the last earnings release, about 62% of their total gross merchandise volume and is growing faster than the so-called core retail part of Amazon. So very interesting dynamics. I think it'd be really interesting to watch what's, what's happening here both in terms of the overall growth of Marketplace and its contribution to Amazon earnings, but in particular what, what Thrasio and Branded have up their sleeves, but they got a lot of fresh powder now to go after these acquisitions.
Michael LeBlanc
Walmart put out their earnings. And, you know, they were somewhat underwhelming, I think you're starting to starting to run into some limits on growth.
Steve Dennis
Well, I certainly wouldn't put their earnings in the remarkable category. I think, we are seeing some things that are probably pretty expected, which is there's a lot of costs associated with the investments. They're making the shift from brick and mortar to online is not necessarily, and probably not accretive to earnings. So, I don't think that's particularly interesting one way or another, It is pretty much what's to be expected. What's going to be interesting going forward, as they start to anniversary numbers from last year, you know, they were so tilted by people stocking up, the shift to grocery from eating out, the move to consolidate trips. I mean, a lot of that benefited Walmart and Target, and some others. And presumably, as we start to come out of COVID, we'll revert a little bit more to the mean.
Michael LeBlanc
Sephora inclusive Incubator.
Steve Dennis
Yeah, Sephora has got this Incubator program. And they just announced that all of the new entrants are going to be focused on the so called BIPOC. Not that we need another acronym, but if people aren't familiar, that stands for 'Black, indigenous and people of color'. And so all the brands that are in there are founded and led by diverse founders and management teams. And I mean, I guess this shouldn't be remarkable at one level, because I think this kind of thing is probably long overdue. And certainly, the emphasis on better representation is, is very important. But I would, I would commend Sephora for continuing to take a leadership role on the Diversity, Equity and Inclusion front.
Michael LeBlanc
Let's talk about the January results for retail in the US. Up 5.3%. 5.3% up in the month of January. Any thoughts?
Steve Dennis
Well, two things are going on here. One is there is a bifurcation here, right? Where the people of means have more discretionary income to spend, and are spending it, perhaps spending it differently. But, but spending it. There's also been an additional government stimulus. So, it's not terribly surprising to see this boost. What will be interesting is to see what can be sustained, depending upon what government still, stimulus is, is forthcoming. And, you know, just generally how the overall economy starts to bounce back in the second half.
Michael LeBlanc
All right, well, that was this week's 'Remarkable or Forgettable?' Tune in again next week, where we take on the top stories in the news.
You know, what I liked about what I liked about David's comments there from, from our interview, was this idea of choice. And, I don't think that that is something that, that retailers may not be thinking enough about, is that perspective of, it's not something to just to be shuffled around, but think of it in that enhance. Give them as many choices as they have to get it as they have to return.
Steve Dennis
Yeah, I think that's a little bit what I was getting at, at the outset of gotta be careful these one size fits all approaches, because not every solution is going to work well for every customer. So yeah, I think, I think that's critical.
Michael LeBlanc
All right, another great episode, Steve read us out.
Steve Dennis
So if you like what you heard, please subscribe on your favorite podcast platform and drop us that elusive five-star rating and tell a friend, I'm Steve Dennis, the expanded and completely revised second edition of my bestselling book, 'Remarkable Retail: How to Win and Keep Customers in the Age of Disruption' is out in April. Preorder your copy right now at Amazon, or at Indigo, or anywhere else you find great books.
Michael LeBlanc
And I'm Michael LeBlanc, Producer and Host of The Voice of Retail podcast. You can learn more about me on www.meleblanc.co. Or on LinkedIn. Steve, have a great and safe week.
Steve Dennis
You too.
SUMMARY KEYWORDS
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