Happy Returns on Thursday announced a strategic investment from PayPal, part of an $11 million funding round that also includes existing investors U.S. Venture Partners and Upfront Ventures. The latest infusion brings the startup's total take to $25 million since its founding in 2015, according to a company press release.
Happy Returns runs 350 "Return Bars" in 63 metro areas as well as two regional hub facilities in Pennsylvania and California for processing and aggregating returns. The company works with Paper Source, Sur La Table and Cost Plus World Market, as well as digitally native brands including Rothy's, Everlane and Parachute Home. The volume of returns and exchanges processed by Happy Returns has grown 800% year over year, the company said.
For PayPal's part, the investment "will help us learn more about how returns can decrease the friction in shopping online and how to help merchants address this growing problem," Robert Clarkson, PayPal vice president, North America, told Retail Dive in an email.
E-commerce has reoriented retail, and growth continues to outpace overall retail sales growth as more legacy retailers expand their digital operations and as pure-plays in several categories continue to enter the space. It's been a costly shift, not least due to the expense and inefficiencies of returns.
Returns are inefficient to begin with and online returns more so, in light of consumers' penchant for ordering more than they intend to buy, especially in apparel, so they can try out goods as they would in a store fitting room. Online purchases are three to four times more likely to be returned than in-store ones, according to Happy Returns. Upending the whole process of packaging and shipping items individually is "cumbersome, wasteful, and expensive for retailers and customers alike," and so the source of the company's opportunity.
"There definitely does seem to be a benefit to retailers to have Happy Returns return in bulk, all the individual returns customers would otherwise ship back in separate boxes. This would likely be a positive from a sustainability perspective, as well, by reducing the use of cardboard boxes," Lionel Binnie, a retail consultant and author of "The Future of Omni-Channel Retail: Predictions in the Age of Amazon," told Retail Dive in an email.
The challenge of returns becomes more important as e-commerce continues to grow, Happy Returns Co-Founder and CEO David Sobie told Retail Dive in an interview, noting that PayPal recognizes that. "This is a strategic investment from PayPal — other rounds of financing have come from investors. We're going to work together because PayPal has recognized the friction in payments. It's not just taking a check."
Indeed, PayPal has done well with its strategic partnerships, at times surprising analysts with their level of success. In a recent client note, MoffettNathanson Partner Lisa Ellis described PayPal as transforming "from a niche, closed, would-be disruptor, to an open, scaled platform and ecosystem collaborator."
"So I can see an investment in Happy Returns as a way to augment its offerings to small eComm businesses and eComm platforms — they can offer a seamless Returns process alongside of other small merchant-friendly offerings like working capital, invoicing, and loyalty programs that PayPal offers," she told Retail Dive in an email, noting that returns is an area "where even a company like Amazon has really fallen short."
The problem is being tackled elsewhere. Kohl's is taking Amazon returns at all stores, and retailers including Urban Outfitters, Nordstrom and Walgreens are working with Narvar in a scheme to take each other's returns. With Happy Returns' model, customers needn't bring a box or label, don't have to start their return online and get their refund on the spot.
The value of Return Bars seems to be greatest for purchases from online retailers that don't have many (or any) physical stores, Binnie said. "It does seem however, that Happy Returns may face a logistical challenge to build out enough Return Bars that are as ubiquitous and as physically close to U.S. consumers as the current network of UPS stores, local mailbox chains, and Post Offices," he said, suggesting a partnership in this vein could be on the horizon.
The biggest efficiencies are being wrung into the chain: Happy Returns consolidates each retailer's returns, repackaging those in good-enough shape for resale, and sends them back in large pallets, and the company has begun employing reusable packing to further reduce waste. It's been a boon to Rothy's and its customers, according to Heather Howard, Rothy's VP of Operations and People. Rothy's mission, according to her, is to get customers the right fit, which is made harder by selling online.
"There's always a bit of a gamble when you buy shoes online. Often you need to go up or down a half size," Howard told Retail Dive in an interview. "Happy Returns is the most frictionless return service out there right now ... The world of reverse logistics has been neglected for a really long time and Happy Returns is really addressing that."