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Episode 22: Welcome to returns culture: Leveraging reverse logistics for a better customer experience

Sippin' & Shippin'
Sippin' & Shippin'
Episode 22: Welcome to returns culture: Leveraging reverse logistics for a better customer experience
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Mary Berko|September 2nd, 2022

Returns used to be one of the most challenging things about the buying journey. Customers had to go through multiple hoops just to cancel a subscription or return a product. In 2022, this is no longer the case. Reverse logistics is considered one of the most impactful ways to create a seamless customer experience. Why? Easy returns = happy customers who will come back again and again. This week, we sit down with Aaron Schwartz, VP of Loop to talk all things returns: current trends, how to optimize the returns process, and where personalization and revenue retention come into play.

Timestamps:  

01:24 Guest Aaron Schwartz: a serial entrepreneur’s journey 

03:42 The founding story of Loop Returns 

06:18 The fall of a difficult return policy 

09:10 The new returns culture: personalization and automation 

14:09 Returns vs. exchanges: optimizing the customer experience 

17:49 Current trends: what to watch out for in returns

21:09 At what point does return management software make sense?

Best practices for e-commerce returns management banner.

Transcript

Brian Weinstein: Welcome, everybody to Sippin’ and Shippin’. I’m your host, Brian Weinstein. We’ll be kicking it here every other Friday, quenching your thirst for an insider’s take to enhance your customer experience. So grab your drink of choice, kick back. It’s Sippin’ and Shippin’ time.

All right, welcome everybody to another episode of Sipping and Shippin’. I am your host, Brian Weinstein. Caitlin Postel here with me today.

Caitlin Postel: I am your co-host, Caitlin Postel. Brian, how are you today?

Brian Weinstein: Very good. I had no corny intro for you this week.

Caitlin Postel: I know. That’s why I figured I’d just jump right in like the co-host that I am.

Brian Weinstein: Jump in. Go get it. Exactly right. And we have our guest today. Can I call you a serial entrepreneur, Aaron? Would that be fair?

Aaron Schwartz: You can, as long as nobody assumes I founded Loop because I’m about five or seven years too late for that.

Brian Weinstein: Okay. Fair enough.

Aaron Schwartz: [inaudible 00:00:54] I would say that’s appropriate.

Brian Weinstein: All right. Aaron Schwartz from Loop, you are president of Loop Returns. Really happy to have you on the program this week.

Aaron Schwartz: Yeah, thanks for having me. I appreciate this. I was hoping I would get a cornier intro, unlike Caitlin, but nothing.

Brian Weinstein: No, she looks at me like I’m rolling out dad jokes every time I say it, so I figured I’d surprise her this time.

Aaron Schwartz: I love it.

Brian Weinstein: Awesome. So Aaron, can you give the listeners a little bit of background on yourself and a little bit maybe about Loop as well?

Aaron Schwartz: Yeah, sure. Very quickly on myself, I think probably the relevant background, professional career, consulting, MBA, and then I started three different companies, one I’d say was pretty bad. It was a sustainability business. And really big ideas, but we didn’t execute well.

The second one is what brought me into commerce. A consumer brand called Modify Watches. We were 2010’s early-ish vintage, became a Shopify shop. Ultimately sold that company to Custom Inc in about 2017, or maybe… I think it actually ultimately sold in 2019, which is funny. Ran it full-time for seven years, and then had an awesome team that was running it for two.

And then, in 2017, co-founded a company called Passport Shipping, which does international shipping for B2C brands like… I think partnered with you guys for sure, Bombas, BarkBox, Native, bunch of really great brands there.

And then I’ve had a little winding journey in the last couple of years. I spent a bunch of time as an advisor and investor in companies, really small investor from a check size, but pretty active advisor, primarily in the commerce infrastructure space, couple ed tech, couple just like… I love talking to early-stage founders and anybody who wants to spend an hour, if I can help them save 10 hours of work, I try to make those hours as often as I can.

And then, one of those advisees became Loop. And after a handful of months and Loop raised a series B, I had the opportunity to jump in. Super high level, I’ve touched a lot of the company. For a short time, I ran sales and then marketing, and then partnerships. And then we got actual, really good functional leaders doing sales, marketing partnerships. And now I’m spending a lot of time on the product side and on the logistics side as well.

So that’s it on me, and I can jump right in on Loop, if that would be useful.

Brian Weinstein: Yeah, absolutely.

Aaron Schwartz: Maybe more relevant and more interesting for listeners. I am from Cleveland, Ohio, by the way. That is the number one thing that I should say about myself, which is a big deal.

Brian Weinstein: We have some connections, by the way, with Cleveland. Our founder, Bob Stull, he was the founder of Port Logistics Group. He was from Cleveland. And today, our chief engineer and process officer, Sarah Drazetic, she is also Cleveland-born and raised.

Aaron Schwartz: Sound like wonderful people. I try to brand it as America’s favorite city. I don’t think I’ve gotten very far with it. So, Loop Returns. Loop spun out of an agency, and it was a really interesting founding story where Chubbies, which was one of the fastest growing consumers I’ve seen, you know them well, everybody does. They had a great exit to Solo Brands right now. I think it was last year or so. So Chubbies had this issue with, they had a lot of customer love, but then they would have returns, and people would want to find something else. And it would take three or four customer service tickets gets to get the exchange, and they weren’t necessarily creating a lot of value by having the personal touch. A lot of times you do want to have that personal touch to dig in with the customer. And so they came to Loop and said, hey, we want to remove that customer… Or sorry.

They came to an agency that our founders were running and said, “Hey, we want to remove these customer service tickets, help us automate this process.” And then it was, oh, wow. Look, if we actually look at the numbers, getting somebody to convert from a return into an exchange, creates an extraordinary lifetime value. You’ve paid, let’s just use 100 bucks and a $30 acquisition cost. We paid $30 to acquire this customer. They spent 100 bucks. Now Caitlin’s asking for the return or Brian’s asking for the return. I’ve already spent that 30 bucks. What can I do to get him or her to stick around as a customer? And the benefits of that are manyfold. But very clearly you get to keep the 100 bucks instead of returning it to the customer. You don’t have to go pay $30 more to acquire the next customer to consume that same original item. And you start the lifetime value calculator. So Brian becomes a referrer, Caitlin becomes a repeat purchaser, et cetera.

So that was the founding story. And if you think about where we fit in the ecosystem, there are some really good companies that do returns. There are some really heavy duty logistics companies like a Happy Returns, or there’s a returner who’s a FinTech company or there’s Narvar who’s a tracking company who’s added a returns product. And obviously there are some really good up and comers as well. Where Loop fits is we are more of a product shop. We spun out of a brand’s vision. We have always been led by our brands. Hey, we’re trying to do this. We want this. This is a pain that our customers are feeling or on the operation side, this is the pain that we’re feeling.

And so at this stage in the business where Chubbies, Allbirds, Cotopaxi were our first three clients, six, seven years ago. They’re all still customers with us. We got, I think about 1200 more and growing very, very swiftly. We’re about 150 humans based out of Columbus, Ohio, raised a Series B from a great fund called CRV, but Shopify itself is an investor. And we are 100% focused on the Shopify ecosystem. So let me pause there. Then I can go into the product side and the impact.

Brian Weinstein: Yeah. No, and I think it’s interesting and I’ve had this conversation with people before, and I’ve been around the eCommerce, especially on the fulfillment side for a long time. And I remember that there was a period of time where returns were, let’s make it as difficult for customers to make a return as possible to discourage returns. But the reality is, and I think this is to your point, it’s about building that brand trust, right?

Aaron Schwartz: Yeah. I think it’s brand affinity. And you can look at, we could have a zero return policy. We would just have a $40 restocking fee on a $40 product. Nobody would return. And you would also be killing your upfront conversion, right? And so you can look at your customers who return. And the default response is, oh, that’s not good, she’s returning. If you actually dig in on the numbers and you look at your whole cohort of customers, what you’ll find is the people who return a lot might be some of your most profitable customers because they’re the people, right? I’m separating from policy abuse, and there’s a small bucket that is very painful, and I don’t want to dismiss it.

But I think what you’ll end up finding is the customers who return a lot are the customers who are really exploring your catalog, who are talking about you, who really want to try that new product. And then they want it to fit perfectly because they want to go talk about it. And I think the reframe that has happened very clearly, at least for the top performing brands, is moving returns from a call center to a very clear part of the profit story, to a very clear part of the growth story and the brand affinity and the customer affinity side.

Brian Weinstein: And there’s the element of being ease of use. Obviously, the customers have to love your product, but then there’s the ease of use that comes along with going to your website, placing that order, getting in the product. And I even think more so than the whole unboxing thing is just that I got the product, did I get it in timely, and then you know what? I didn’t like this, or I didn’t like the way it fit, or I ordered two because I’ve never ordered this product before. And it’s just so simple for me to return that product. That to me is what that wow experience is more so than an unboxing.

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Aaron Schwartz: Yeah. I think customers know that upfront. So a very clearly stated return policy will increase your conversion rate, no fee return policy. And again, this isn’t right or wrong. Every brand should tinker and play and create the quote unquote “right experience” for them. I don’t think there’s a default correct experience, but you can definitely increase your conversion rate by itself. And if we think about returns as the same thing as forward commerce, fewer clicks, more self service, can I get what I want when I want it through the channel I want it, is extraordinarily powerful.

Brian Weinstein: Yeah, for sure.

Aaron Schwartz: Yeah. Brian, I think…

Caitlin Postel: And one thing that…

Aaron Schwartz: Sorry, Caitlin, go ahead.

Caitlin Postel: No, Aaron, please go ahead.

Aaron Schwartz: No, after you please.

Caitlin Postel: Yeah. So you mentioned churn, customer churn. What are some strategies that folks are taking, that merchants are taking to avoid that churn besides just the frictionless experience, right?

Aaron Schwartz: Yeah, I love it. So the piece that I was going to try to dovetail in and I was going to do a bad job, I was thinking along this lines. So I’m glad you asked that question.

Caitlin Postel: Let’s just get there, right?

Aaron Schwartz: Yeah. I would think about maybe different stages of a return experience. So we think about it from the journey of a consumer. The first thing is, can I do it on my phone at 2:00 AM without talking to anybody? I don’t want this product. Can I just get rid of it? Or I want to exchange this product. And I know I got a small and I really love it, but I want a medium or I want to switch the blue for the green. So that’s step one. That’s table stakes. At this point, it doesn’t matter who innovated and moved it forward. Everybody’s doing it, and you can probably go get it cheap, cheap. I don’t mean that in a pejorative way, but makes a product that gives you that value. It saves your sales team time. Fine. The next step is, are you learning from that?

Right? So do you get return reasons? Why are people returning that? And then do you pull the insights out of that to help change your merchandising or to help change maybe even all the way down to your production, right? Because okay, this line is always running smaller, this line always has issues. There is a way to get those insights out of there. So day one to me is automation. Day two is trying to drive in exchange. And so it’s more like how do we create a cookie cutter, good experience? Going back to Caitlin what I was saying earlier about revenue retention, if you’re $100 million brand and you have $30 million of returns, every 1% that you turn convert Caitlin from a returner into an exchange, every 1% of those is worth $300,000. It’s worth 3000 customers. If it’s $100 AOV, it’s worth hundreds of thousands of avoided CAC, right? Against that.

And so if you just think about, okay, how do we in shop the exchange rate? What do you do? You give an incentive for the person to keep the product. Well, first of all, you make it seamless for him or her to see, okay, here’s the choice. I want to exchange the blue, size 11 shoes. Can I, first of all, size 10 and a half or size 11 and half. Second of all is size 11 in different variants, which Shopify has a lot of limitations, but because Loop is built on Shopify, we can give you effectively your whole catalog in that base level customer flow. And then the third piece is like, can I exchange for a completely different product? Maybe $100 pair of shoes for a $30 shirt or for a $250 jacket, but how do I get the credit from this experience?

And I think that’s where the industry is going. And then I think there are a couple things that we add on top that hopefully help and tell a different story. We see in particular, the merchants who are willing to invest the time and engage with it, is we have a product called workflows or custom rules. And it’s really a very grandiose nested if this and that statement. And so it’s like if Caitlin is a multi-time customer who has bought 300 or more dollars worth, give Caitlin the experience of an extended return window or more bonus credit or something like that.

And where we are driving, and I assume the industry will follow and it should follow, is creating more of bespoke experiences, bespoke, not necessarily down to one, but more group level experiences. The first time buyer, the person who buys this product has a different window, the person who has this, the return gets routed to a different location. So it’s both the digital experience for you, and then it’s also the operational experience, where do our returns get sent? You might want the returns of one product to one facility, returns of another product to another, the cheapest return option… And I think that’s where you can see this keep laddering up.

Caitlin Postel: Yeah, absolutely. So it sounds like data plus choices plus automation, the consumer wants it to work out, and you want it to work out for them.

Aaron Schwartz: Yeah, I think ultimately we talk about the brands that get the best success out of Loop, it’s not like you turn us on and on day one, you’re having the optimal performance. It will be better. It’s on day 180, you should be much better than day one. On day 360, you should be marginally better because we think about it, both the product and creating this really expansive, again, we’re product shop. So we have a lot of tools that you can work with to drive the experience you want, but ultimately, how do you make those choices going back to there isn’t a quote unquote “right choice.”

It actually means the partnership with our merchant success team and tinkering and saying, cool, let’s do this experiment. Or what if we extend in a return or, hey, we don’t use a loyalty program so we don’t know who our VIP customers are. Maybe we should define them by their behavior, six purchases or more, whatever. I think that tinkering, and I feel like tinkering makes it sound small, but really the ongoing optimization is probably the way to think about it. And that’s just so different from how people think about returns today.

Brian Weinstein: I mean, it’s a continuous improvement model essentially for the experience.

Aaron Schwartz: That’s a much better way to say it, yes.

Brian Weinstein: Yeah. And just out of curiosity, are you measuring the percentage of returns versus… I shouldn’t say versus, but the returns versus exchanges?

Aaron Schwartz: Yeah. So we do, and this is one of those where I can give you stats and your mileage may vary going back to what is your return policy? So if you have a higher fee or you have a shorter window, that will change, even if you have the exact same product and the exact same price point as another company, right? So what we’ll see is it depends by verticals. The verticals that feel the most pain would be let’s call it apparel, footwear, intimates, things that have a high exchange rate. We have some in the twenties, some in that ballpark. And so what that means is for every 100 orders we’re able… Or let’s actually change it from orders to dollars for every $100 in returns in that example, if you’re in the middle, you’ll get $38 into exchanges.

We show that’s higher than any of our bigger competitors, because that is the thing that we focus on. Again, if you were not a Shopify brand, you should definitively go with them because we wouldn’t be able to serve you to begin with. If your absolute priority is a great tracking experience and you really won’t like the enterprise grade, that’s Narvar. If you want to do the Shopify explicit, you would use Malomo or Wunderman for example. And so there’s different reasons why you would clinical buy each of the different solutions from us. It is that revenue retention piece that’s the differentiator.

Brian Weinstein: Do you find that there’s a certain percentage where someone’s buying items and that when they go to return it, not only are they exchanging, they’re actually acquiring another item that it increases what their original spend was to begin with?

Aaron Schwartz: Yeah. So there are a couple of different features that we have around this. One is our Shop Now bonus credit. So normally if you go and you do a return, you’re default thinking about either an exchange or return. You’re not thinking, okay, cool, let me go get some credit and then go shop for something else. That’s not like your intended consumer behavior.

And so what we want to do is nudge the consumer to know that is possible. So we will allow them to shop through the catalog. Think about it this way. If you do a return, you are used to doing a return exchange experience where, again, going back to the example from before. The size 10 and a half shows up, or the blue shows up, what we will allow our brands to do is actually bring you back into their website and go through the entire eCommerce flow with the return credit. So now all of a sudden you have the $100, which you can spend anywhere on the site, but you’re not browsing the site through a modal that we’ve made you, made the brands, whatever. You’re literally browsing the site with a Loop overlay is probably the easiest way to think about that.

So that’s a piece. And then the other is like, we’ve launched a product called Instant Exchange a couple of quarters ago, which drives people to realize that, “Hey, you can get that exchange faster than even sending back the return.” So the spirit is get the right product before returning the wrong one. Same thing. We see that the combination of the bonus credit plus knowing that you can actually get the item quickly, nudge consumers to go and shop more. It could be add a second thing. Again, prior to the point before, you might actually get somebody who had a $100 item who only buys a $30 item, and they get 70 bucks back on their credit card or in a store credit or whatever policy the brand sets up. That’s also okay, because you’re still retaining that human as a customer, and now you can go and re market to them and find new products for them and everything.

Brian Weinstein: What do you see as the trends in returns right now that might be continuing to change in the coming years?

Aaron Schwartz: Yeah, it’s a good question. I think the first one is actually flipping the perspective or the paradigm of returns as a call center into a LTV driver, into a profit center. It just is. You’ve paid a crazy amount of money to acquire these customers. You need to make sure to get them into the right product so that they become a raving fan. Not somebody who’s just like you paid Facebook, Facebook got you that human, that human now left, right? So I think that is just a paradigm shift, and it is pushing innovation to create better consumer experiences.

I think the second thing that we’re seeing is I’d say we have permission, and now we’re starting to get asked to help optimize the operations. So partially it’s like, how can we get cheaper shipping rates? But partially it’s “Hey, I have 1000 returns a month or 10,000 returns a month or a hundred thousand returns a month. Help me optimize what happens with those.” If I just send them back to my 3PL. And they’re obviously like you. There are super advanced PL that can handle everything. And then there are 3PLs that just like, they’re really great at forward commerce. And they’re very bad at returns because returns is hard.

So maybe what you should do is you should send them first to a facility that will inspect them. And then donate the 30% that just should be donated, and refurbish the 40% that need to be refurbished. And then just immediately ship back the 30% that could be shipped back. And so what we are seeing is a big ask from our merchants to go help them optimize their entire reverse supply chain. We are asset light. Loop will continue to be asset light. We see it more as we are mission control. You as a finance function, you as an operations and a logistics and inventory team need to have perfect data. We will make sure that the data flows through each of these partners, but ultimately it’s how can we be in service of the brand and help the brand level up their full operation stack? So that’s on the revenue retention side, we’re helping you with profitability. We can also help you with profitability on the cost reduction side.

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Brian Weinstein: Yeah. Yeah. I actually love that because I will tell you, it’s part of our core DNA to be able to handle and process returns, but it’s partly, it’s really in large part because of our background of apparel. We did a lot of fashion, and we did a lot of value added services. So we were in that game before it was returns for E-commerce. So I can understand why other 3PLs might struggle with it and why having functionality being able to say, “Hey, look, I’m going to divert this here or there depending for a little extra assistance.”

Aaron Schwartz: Yeah, that’s right. And I knew you guys back in the PLG days and I mean, through Passport, of course. And I think that was one of the things that was always striking is you handle the biggest hairiest problems, and that’s just not in the DNA. And I think appropriately, it is not in the DNA of a lot of the more modern D2C 3PLs. And also, every brand has a different need. And even if a 3PL’s exceptional at it, you may still have a very discreet need because of the way that you need to refurbish your linen something. Sometimes there is another place. And so we see it as our job just to enable them again, to get the experience that they want, not for us to mandate which way things should go.

Brian Weinstein: Yeah, absolutely.

Caitlin Postel: At what point does a returns management software make sense for a merchant? Because sometimes when I’m speaking to prospects, they’re like, “Our return rate is too low. We don’t need that.” Which I understand for the economics of it, but is there a threshold, is there a percentage point or when does it make sense?

Aaron Schwartz: Yeah. That’s a great question. I want to process what my opinion on this is. So I think, look, I’ll go back to my founding of the watch company that I ran, is we wrote handwritten notes with every order. I never put the product in a 3PL, and I really want to be truly intimately close with our customers. I wanted to run it like a tech company with a minimum viable product. And Brian, to your point about continuous feedback. I didn’t want to have a report from somebody else. In retrospect, I think I was completely wrong in how we did it. I think we could have gotten the vast majority of the customer interactions without taking on the operational overhead. So it was like, could I do it without a 3PL? Yes. Did we? Yeah. Did we optimize? No, we screwed up. Right? I think it’s analogous.

You can get by without this. And you can tell yourself that, hey look, Caitlin, I run customer support. I’m getting, we have one return, 10 returns, 100 returns a day. I get emails from my customer. It’s an opportunity for me to upsell them and end to end. I think the challenge is, think about yourself as a consumer and what is the experience you want? What you want is to be able to get done on your own timeline without having to go back and forth. You either really want your money back or you want to exchange it, or you’re not sure. And you’re somewhere in the middle. Very rarely are you like, I really want to engage with another human to get this thing that I in my mind and I’m certain I want. So I think I would first think about where are you as, what is your objective as a customer service org?

There are some companies that want to make it very painful to do a return. I mean, I just had to cancel a magazine and I had to get on chat and then keep saying, please cancel. Right. There are some places where you want to shirt that. I think the modern D2C brand is not in that mindset. It’s like, cool, let’s go create a delightful experience. So I think automation in and of itself is useful. I think there are great companies out there like us to do it at a very high level. I think there are also probably really nice apps in the Shopify store that are 30 bucks that if all you want is automation, great. I think that is a better consumer experience. I do think there’s that next level of, are you thinking about, are you able to afford a piece of software that is going to pay off in 30, 60, 90, and in a very big way in 360 days or not?

If you’re at a point where you’re going to sweat the 50 bucks for XYZ software, whether it’s returns or anything else, be cautious because as a founder or as an entrepreneur, you don’t want that stress. I think when you get beyond the, you’re truly living day to day, I think returns, I mean, maybe a different way to think about it’s like returns is 30% of your total business. It’s a very high percent of your cost. If you think about return shipping and everything, dialing that in will actually create a ton of leverage for your business. It’ll create a better consumer experience. It’ll give you better insights in your product and your flow, and like we discussed, it will increase your… It is a profitable, sorry, it’s a way to drive profitability. Yeah. So that was a very wishy washy answer but I would, yeah.

Caitlin Postel: I think it makes a lot of sense. Yeah.

Aaron Schwartz: If you’re at 1000 returns a year, I think it’s a good place to be like, okay, are we trying to build a big business? If we are, we should probably start optimizing any and all of our processes and keep moving up. Less than that, it’s more manageable. Maybe you’re getting a lot of feedback. And again, you do get that. There’s a customer intimacy of having to interact with somebody. As long as you’re curious, if all you’re doing is trying to get them out of your help desk, then you should definitely use the return system because you’re creating pain for yourself and for them.

Brian Weinstein: You specifically brought up something that we’ve heard and I know Caitlin and I have seen is, again, and entrepreneurs and I totally get it, they’re in the process of building a community around their brand. And they want to have that intimacy that comes along with the customers. They want to have that intimate feel, and they want people to feel, they want to feel accessible and open, but then you battle that scalability side of it. How am I going to take this up? We get requests. The handwritten notes is obviously one thing we’ve had. People wanted us to actually hand write something onto the item itself. And this is all great, but it’s not scalable. And if you’re really trying to grow a scaling company, at some point, you need to turn to technology. And still, and I’m going to bring this back full circle, I guess, or Loop if you will…

Caitlin Postel: There it is.

Brian Weinstein: There it is, there it is.

Aaron Schwartz: Caitlin, I’m so glad I’m here to experience this.

Brian Weinstein: But really, I mean it’s about gathering and learnings and the information that you can get. And as much as you want to be close to the customers and have that feeling, when you turn towards tech to help drive your business, you are immediately gathering up data that’s going to help you continue to improve the customer experience. I think that’s the critical.

Aaron Schwartz: I think that’s it. The insights matter, right? I know the customers who love you are the customers who aren’t just using you because you’re great at fulfillment, obviously, and more. But it’s also because you help them understand their business better. You give them good data, they can do reporting, and you’re partnering with them on that. I think it’s the same thing for us. I think it’s the same thing for most good commerce tech, commerce infrastructure products is I’ve learned more and just build my business in a better way. Full stop.

Brian Weinstein: Exactly right. Exactly right. All right, Aaron, it’s been a pleasure. Caitlin, did we miss anything?

Caitlin Postel: No, I think this was great.

Brian Weinstein: That was fantastic. This was super insightful. This I think is going to be helpful to the community. They’re learning a little bit about, hopefully a little bit deeper about the return process and everything else and where they could stand to benefit. And obviously, you were nice enough to talk about different options and solutions, and it wasn’t just all about Loop. This was great. Caitlin, you want to take us out?

Caitlin Postel: Sure. Thank you Aaron, for joining us today. Thank everyone for listening. Check us out at sippinandshippin.com or on your favorite podcast platform. Thank you everybody.

Brian Weinstein: Thank you.

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