LOS ANGELES – When David Sobie and Mark Geller worked at Hautelook they created the returns program that ensured that customers could return Hautelook purchases at Nordstrom Rack locations. This was prior to the omnichannel retail existing yet it lay the the groundwork for their future. Little did they know that they would create Happy Returns that would leverage their domain experience regarding returns.
I spoke with David Sobie, CEO and Co-Founder of Happy Returns and our conversation made me realize that retails future will contain a moment for returns. Returns is one of the remaining elements in retail that has not seen significant investment, yet it is a line item which provides retail Chief Financial Officers with sleepless nights.
Happy Returns is part of the new wave of ecommerce startups that is making Los Angeles a hot bed for investors. Happy Returns, Dollar Shave Club and Hollar all call it home and seemingly there is a lot going on in the Los Angeles startup scene. It is a short flight for investors from San Francisco or Seattle.
The Impact that Returns Have
Sobie made a point that resonates with me and that is returns plays a role in life time value (LTV). It impacts conversion as customers will use returns as a factor for deciding a purchase. It could be the first and last interaction between customers and online retailers. The fact that no real innovation has taken place for returns is due returns not being a single person’s responsibility at online retailers or retailers company structures. It sits between the marketing – and operational departments and it contributes to a line item that is the CFO’s responsibility.
Happy Returns started by providing online retailers with return infrastructure in stores and malls but as retail is evolving they are having conversations with omnichannel retailers who require this infrastructure if they are going to close locations. This highlights a point that is increasingly becoming obvious to any executive in ecommerce or retail. The future of retail is not pure online or location specific but rather a mix of online and physical retail, omnichannel retail.
Happy Returns provide Return Bars inside malls and sometimes is located with guest relations. I found the fact that they have 20 locations fascinating, they are clearly at the start of journey. The business is currently US focused and prides itself with providing their partners with competitive rates in comparison to postage rates. The founders believe that in person returns is an easier and friction less event in comparison to using postage or reverse logistics.
Happy Returns in more detail
The business model is simple – they charge retail partners a few per item that they then aggregate and then send to the returns location of that specific. There are future plans for monetizing the qualified foot traffic that is generated to shopping malls. They aggregate the packages then process it and then send it to the respective retailer. Certain retailers require the items to be in branded pouches, have barcodes on them or marked in a specific manner. The point is that Happy Returns ensure that their retail partners receive their items in much more economic way in comparison to using reverse logistics.
Happy Returns have built their own hubs and spokes. The spokes are the various Return Bars seen in malls that are then processed nightly or weekly. They then use a common logistics partner who then ship to their hubs and then use that same logistics partner to send it to their retail partner. The beauty for me with this current arrangement is that as Happy Returns scale they are ably to renegotiate with logistics partners and get more capital efficient rates.
Happy Returns have partnered with direct to customer startups such as Everlane, Eloquii, Tradesy, Shoes of Prey and Carbon38 to ensure that these businesses can provide their customers with easy returns.
Happy Returns have partnerships with mall operators that should ensure that they can grow at a reasonable rate and get access to new markets in a much faster manner.
We briefly discussed the impact that the Amazon and Whole Foods market may have on Happy Returns. Many consultants have used this pending acquisition as a potential logistics footprint by Amazon. There are many things that Amazon will first want to optimise inside Whole Foods before using them as returns or logistics facilities.
I believe that 2017 is the year of ecommerce logistics and after speaking with the Happy Returns team I believe the opportunity to innovate and partner with online retailers who are trying to make returns more capital efficient is even larger than what I believed. The fact that Happy Returns have investors like Maveron, Lowercase Capital and Upfront Ventures (Greg Bettinelli) should provide you with the signal that Happy Returns is going to play a role in the returns ecosystem in ecommerce.