It wasn’t all that long ago returns were considered something of a faux pas in retail. Today, hassle-free returns have morphed from a customer perk into a customer expectation. David Sobie, Co-Founder of Happy Returns, joins us to unpack why returns have become so integral to a merchant’s success and how to provide customers options to enhance the customer experience.
Brian Weinstein: Welcome everybody to Sippin’ and Shippin’. I’m your host, Brian Weinstein. We’ll be kicking it here every other Thursday, quenching your thirst for an insider’s take to enhance your customer’s experience. Grab your drink of choice, kick back. It’s sippin’ and shippin’ time.
All right, everybody. Welcome back to another episode of Sippin’ and Shippin’, I am your host Brian Weinstein. I’ve got with me as always, Caitlin Postel, my co-host.
Caitlin Postel: Hey Brian, how are you?
Brian Weinstein: I’m doing well. And we have David Sobie, co-founder of Happy Returns. How are you today, David?
David Sobie: I’m well. Thanks for having me.
Brian Weinstein: Awesome. I appreciate you joining us today. We’re going to start it out, this happens to be, we’re just here having a little breakfast coffee, maybe midday coffee. And so what are you drinking today, David?
David Sobie: Well, I’m in one of our processing hubs on the East Coast, so I don’t have my normal coffee, but I am drinking coffee from the Keurig. It’s a Pike Place, dark roast. And I’m probably on my third cup because I’m a little jet lagged right now.
Brian Weinstein: Yeah. I can imagine. I was in California last week and I hear you. Are you Starbucks loyal?
David Sobie: No the coffee I’m really into right now is called Verve. I don’t know if you have had Verve yet. I think they’re maybe San Francisco? Really excellent.
Brian Weinstein: And what is that like, is it just a slow roast, grind up?
David Sobie: Yeah. I just buy the beans and grind them and in my quest for the perfect cup, I found the french press to be what I like the most. So a rough grind, boiling water in the french press, and that’s mine.
Brian Weinstein: That is awesome. How about you, Caitlin?
Caitlin Postel: I have my tried and true pomegranate green tea here.
Brian Weinstein: Okay. Now, so everybody knows I am the boring one. So you are going to have to change for the next time we do this, but I am, as everybody knows, I am Dunking Donuts as often as I possibly can. So we’ve got the Dunking Donuts rolling this morning. David, in case you catch one of the episodes, I tend to lean towards tequila for the cocktails. I will change brands, but I’m mostly tequila on that.
David Sobie: I’ll have to come back at happy hour sometime.
Brian Weinstein: Yes, exactly. You’re welcome back anytime. All right. So we wanted to kick into returns and build a little bit of a history. David I’ve been in the 3PL industry my entire career grew up before there was even eCommerce and then saw the start of the eCommerce revolution, sales going online. And my recollection was that the brands tried to create as much friction around returns as they possibly could. Didn’t necessarily include a return label, didn’t necessarily make it easy, had to call in, they didn’t even really have the chat bots, email wasn’t all that sophisticated. I’m assuming maybe not directly in returns, but in some way you were experiencing that as well.
David Sobie: Yeah. I remember that part of the story. I think in the early days of eCommerce… My background is almost 20 years now doing eCommerce. Everything from eBay to Haute Look to Revolve, and yeah, returns was one of those areas where I think the logic was, “if I make it challenging, I’ll get fewer of them.” And in defense of the merchants, returns are a pain, right. They’re hard to deal with, they’re expensive. But I think that was probably until the era of Zappos really, I think that was the idea really, was you get the convenience of online, but you have this additional tax associated with doing something like a return.
Brian Weinstein: Yeah, exactly. I’m just curious if you had that same moment. I remember reading, I guess it was like 2010 and Tony Hsieh’s book came out, “Delivering Happiness”. And I literally remember thinking to myself, “he did not just fucking say that” right. When he said, “doesn’t matter, we’ll take returns back at any time. It doesn’t matter if it’s 12 months later.” And it sounds like your background is very similar, right? Fashion. For those that don’t know, for those that might be from a different vertical, if you’re in fashion, you can expect anywhere from, let’s say 16 to 35% return rate.
David Sobie: Or higher.
Brian Weinstein: Or higher. So he makes that comment and you’re like, “oh my God, we could have 30% of everything that goes out the door is going to come back.” Did you have that same sort of moment?
David Sobie: Yeah. It’s staggering. And I’ll tell you where it came into real focus for me was, I worked at a flash sale retailer called Haute Look. And we ended up getting bought by Nordstrom, and you start to look at return rates for a company like Nordstrom, who for a long time, part of their identity has been the customer experience, and doing everything to create loyalty, and lifetime value through things like a very permissive return policy. Nordstrom.com has a very healthy return rate. Then I ended up leaving Haute Look and going on to be the CMO at Revolve Clothing. At the time it was a private company, it’s now a public company, very well documented in its public filings. The return challenge for something like Revolve.
Similar, very healthy well north of the range you provided, but I think what Revolve and Nordstrom and certainly Zappos have in common is this idea of removing the friction. And I would say that’s probably the most counterintuitive part of eCommerce and maybe counterintuitive in terms of Happy Returns is this idea that, it’s actually in your interest as a merchant long term to make this as easy as possible. And, don’t believe me, there’s plenty of evidence on this. There’s plenty of studies that show, if people buy from you and they have a bad return experience, they’re never going to come back and shop again.
Brian Weinstein: You’re really trying to create that experience because, it’s easy, you could sell something online one time. If you don’t create that experience around it, you’re never going to get another sale from that person. Really what you want is somebody that just continues to come back.
Caitlin Postel: Right. One return is worth a customer for life, I guess is the thought process there.
David Sobie: That’s right. And that’s another one of these counterintuitive points, but we’ve learned in the course of Happy Returns is that if you ask a merchant about the lifetime value or you ask them to segment their customers, what you’d find is that the best customers are the ones that actually have gone through the return process and had a positive experience and come back again. Because they’re over the hump of, “if this doesn’t work out, it’s not going to be horrible.” and if you do a decile analysis, so your top 10%, your next 10%, your third 10%, what you find is that your best customers buy the most, but they also return the most. And, it’s like shots on goal in a hockey game. You got to have a lot of them to have some go in.
Well, you got to buy a lot to keep a lot. Because as you described when we were getting started, sizing is hard. And especially in a world where people are manufacturing or sourcing products from all over the world. I was talking about myself, I’m a men’s 10 in my shoes. I’ve been a 10 for 30 plus years. But if you went in my closet, you’d find 9 1/2’s, you’d find 10s, you’d find 10 1/2’s, you’d even find some 11s. It’s not because my foot has changed, it’s because these shoes were made in Italy, these shoes were made in Mexico, these were made in Vietnam.
And it’s just hard to have consistency in sizing. And so we all know that as shoppers, and we all have become accustomed to return policies like Zappos or Nordstrom or Amazon that allow returns to be free. And so we shop differently. And so we say, “I’m going to buy three sizes because I’ve never tried this brand before”. Or maybe, “I have an event and so I’ll buy three or four dresses and keep the one that fits best and makes me look best”. Because it’s really hard when you’re buying off of a photoshopped model online, that’s been styled professionally. And it may not look the same way on you at home because maybe you’re not 5’10” and thin. So we’re real people that are shopping and have real bodies and things fit us differently than they might when it’s perfectly merchandised.
Brian Weinstein: Right. And as painful as it was, when I first read what Tony wrote, I think ultimately fashion stands the most to gain, or stood the most to gain by making it frictionless. Because to your point when you take away the ability to just walk into a store and see it, and instead you’re trying to sell to people online, if you make it easy…. I just told you a story that I bought a couple of pairs of pants because I never bought from this brand before I was able to buy the two sizes and return one. We’re 3PL, we know when we get an order for the same item in two different sizes, we know one of them is coming back. And I was fortunate enough, I just shared that I was able to return the larger pair, so I was very proud of that. So I’ve done okay during COVID I guess. You have to have that, or you’re not going to buy unless you can go to a store and try it on.
David Sobie: That’s right. And I think you’re right, the 30 to 40% return rate is, I think that’s very unique to certain categories. And so apparel, footwear, anything where sizing is important and even within apparel, there are certain categories where sizing is more important than others right? It’s okay if my sweat pants or my athleisure stuff is maybe a little tight or a little loose, right. But I’m never going to keep shoes that are too tight. I’m not going to walk around in a pair of shoes that hurt my feet. So certain categories have higher return rates. Dresses, as an example, tend to have really high return rates, shoes have high return rates. Accessories, handbags, less so because there isn’t the sizing challenge. Watches less so just as some examples. And then you’ve got certain categories that don’t allow returns, which makes sense. Undergarments, for example, oftentimes you can buy the first pair and return them for sizing.
But after that you’re unable to get your money back. Swim sometimes has those characteristics as well. When you get outside of those categories, you start to get into things like say toys. I’ve got a couple kids, and sometimes they’re like, “well, these are a little big today on you, but you’re going to grow into them. So I’m okay with that.” There’s certain categories or people that don’t have the same return challenge. Certainly at the other end of the spectrum, you’ve got things like grocery or consumables where it may just not be worth the hassle to return this thing that I paid a couple bucks for. You’re not going to return diapers, you’re just going to make it work. And then you’re going to have everything in between.
Brian Weinstein: There was the scramble, obviously to go frictionless or at least appear to be going frictionless. Are there any verticals in particular that maybe have not embraced that as much, where they try to still keep a little piece of friction or are there things that you’re finding that some brands do that still add maybe even if it’s a small degree of friction, but just enough where the consumer might say, I’m just not going to bother?
David Sobie: Yeah. I think some places, especially that are super seasonal, they may have restocking fees or fees associated with returns to try to create that disincentive. What I think has been probably the most interesting development in the almost six years we’ve been in business is, because return shipping has become so expensive, and because there have been alternatives that are lower cost, like return to a third party network like ours, or similar to what Amazon has done with Kohls and whole foods, et cetera, is the use of fees to try to drive behavior.
And so, as an example, we work with a big, well known shoe brand. They have probably 70 stores, and they try to use their policy as an attempt to drive consumer behavior. So they say it’s free to return to our store. There’s a very low fee to use Happy Returns and there’s a high fee to mail it back. And so what they’re doing is they’re mapping their cost structure to their return policy and saying, “well, we want you to come into the store because then we can interact with you. And the best chance that we’re going to be able to have you return something, but also walk out with something.”
Happy Returns, that’s our lowest cost, and so in a world where returns have to be free, or if they’re not free, they’re subsidized, I’m going to try to drive you toward that because that’s the cheapest one for me, the brand. And so again, they’re trying to still charge for returns, but it’s a very low fee, I think it’s like $2 to use Happy Returns. Whereas if you want to mail it back, well, gosh, there’s no way for me as a brand to get any economies to scale it’s really inefficient it’s to ship a single pair of shoes back. That’s really expensive for me as a brand. And so I’m going to charge you for that.
Brian Weinstein: Yeah, you’re right. And you have to find those ways to subsidize and from that’s come an entire rise of whether it’s driving traffic to a store. You guys have that great option in your return bar, which is obviously taking you to a store that’s a non-competitive store. And then there’s other software platforms that can tie in and as you’re making returns offer you the day site sales from the product that you’re returning. Right. How do you-
David Sobie: Yeah. If I could comment on that one. I feel like exchanges and the exchange rate is this big opportunity for every merchant out there. And we’ve all had this experience where you buy something online, it’s not what you want. You still want it. I bought the medium shirt, but it turns out I need the large. And so I go to return it and I hear from the brand, “yeah just buy the thing you want and we’re going to charge you for that immediately and then send us this back and we’re going to wait, and you’ll get your, your money back in say three to four weeks. But trust us, this is going to work out.” And you think to yourself, “wait a minute, I’m already on the hook for one shirt. Now you want me to be on the hook for another?”
Our approach to that, and we’re not the only ones doing this, is to try to have that exchange happen in the same transaction. And I think that, if you think about returns, everybody focuses on one metric, which is return rate. But if you can turn a return into an exchange, that means that you, as the brand are keeping the customer, retaining the revenue. And so really what we should be focused on is your net return rate, your gross return rate, less the number that you can get convert into exchanges that gets you your net.
And so you want your exchange rate to be as high as possible. How do you do that? Well, you make it easy. And you make it easy through software, as you point out, right? Software that can tell you things like, if you’re returning the medium, because it’s too small, make it easy for the customer. And so what our software does is it’ll say, “Hey, that large is in stock. Do you want it?” And it’s just that action of putting it in front of the customer that drives exchanges.
The same way if you walked into a store and said, “Hey, I’m returning the medium.” The store associate wouldn’t say, “okay, great, Brian, here’s your money back”. They would say, “oh, I’m, I’m sorry it didn’t work. By the way, that shirt would look great on you, did you try a larger size?” They would try to sell you. And so that’s the same design principle that we think about with regard to exchanges. As I said, we’re not the only ones that do this, but it’s sort of this recognition that it should be as easy to exchange an item as it is to buy it.
Brian Weinstein: Right. Right. Exactly. And again, that just lends more to that experience.
Caitlin Postel: Exactly. Optimizing the exchange, that’s low hanging fruit and now you made it seamless. It’s easy for me. And now I may even go back and shop again or add another item to my cart just because it was that easy. That’s my experience. I was always dreadful, a very much in person type of shopper and what better time to break that habit than COVID, right? So just having that going and being forced into that space, but knowing that there are options out there being in the space and knowing there are folks like yourself that make it easy. It really lends you towards that path because it is easy enough.
David Sobie: Totally. You know, as someone who’s been in retail for a while, I used to think about the world as like physical stores and online. Remember omnichannel? But as a customer, we don’t think about it that way. We don’t think about, “oh, I’m buying from Nordstrom online and somehow that’s different than Nordstrom in the store”. We just think about “I’m buying from Nordstrom.” And so when you think about it through that lens, through the customer lens, it’s like one set of policies, one process that’s as easy online as it is in person. And just think about buying from brand. There’s this question of, “did I do it in person or did I do it online”, but from a customer standpoint, no customer thinks about channels, or omnichannels. That’s not language that customers use. Shoppers think about, “I bought from this brand or I bought from this retailer”.
Brian Weinstein: A hundred percent. If I was the quintessential shopper, the friction returns worked on me, by the way, I have a closet full of things with tags still on it, because I never returned it. So there wouldn’t be a whole return to industry because of it, and I probably would buy from the same people because I just never remembered, and my wife would yell at me every year when she found the pile of clothes in the back of the closet that’s still had tags on it.
I think you’re right and it’s really changing. Nobody thinks in terms of where you bought it. You’re buying it from your phone, you’re clicking on an ad on social somewhere, or you’re walking into a store. And as it becomes easier and easier we think about it in terms of those channels, because we’re in the industry. But I think for the consumer, they don’t, and as that line gets completely blurred and that ease of use continues to extend, it just enhances that experience. So David, where do you see it going from here? What are some of the next things that are coming into returns to just continue along that vein and increase that experience?
David Sobie: Yeah. So maybe I’ll talk about it from a shopper perspective and a merchant perspective. So on the shopper side, I think… And I’ll qualify what I’m saying by what we do is buy online, return to store, for retailers without stores, to a network around the country. But we’re not the only ones that are approaching it this way. And I’ll go back to Amazon. You know, if you look at what Amazon is doing in returns, it’s buy on Amazon, and they will drive you toward returning in person. You’ll see Kohls, you’ll see Whole Foods, you’ll see UPS Store. You’ll see, I think they have like about 7,000 places where you can bring your item box free, in person for an immediate, or in their case a provisional refund or exchange.
That’s what we are doing for the rest of non Amazon, is that same process. I think where we’re headed from a consumer standpoint is just more drop off options. I think the future is box free, there’s no question about it. I think the future doesn’t involve printing labels. I think the future is contact free with QR codes, and speedy refunds or exchanges. Because I think people are just tired waiting for something to get shipped back. You know, the expectation is, “I’ve done my job when I’ve dropped it off, and that’s when I expect my refund or exchange”. And so I think for shoppers, you’re going to see just more in person drop off options that remove those friction points around waiting to get your money back. We talk about the arts and crafts project of printing a label and finding a box and taping the damn thing up. That’s all gone. I think that’s last decade.
On the merchant side, and this is actually the part of our business that I get most excited about, is in a world where delivery and fast delivery and free delivery is expected, the only way to really do that is to either forward position your inventory, meaning have it in multiple places so you can ship quickly, or start to think about your returns as part of the fulfillment solution. And so what I mean by that is, in our case, we have this network of drop off locations for consumers. We consolidate, we ship back to regional hubs, and today what we’re doing is we’re sorting by merchant, and then we’re bulk shipping out using an LTL or FTL back to the merchant’s warehouse or the merchant’s 3PL.
But we’re handling those goods, and so you start to think about could we either ourselves, or in partnership start to do the inspection and the processing to get the items ready to be resold and start drop shipping to the next customer from that hub. So let’s aggregate the returns in one part of the country. And then if we can fill orders from there, let’s do that. Why does it have to go all the way back to the warehouse and get unpacked and put back on the shelf so we can pick it back off the shelf, put it in a box and ship it out again. Why not use these interim aggregation points as part of the fulfillment network?
And so a long way of saying, I think returns is reverse logistics, but I think the future from a merchant perspective is going to be marrying that with forward. Such that you can take advantage of the fact that the returns is sort of a natural distribution of your inventory. People in this part of the country are buying your stuff and now they’re returning it. Well, let’s keep it in that part of the country and let’s find the next person for it.
Brian Weinstein: We talk about it on our side as a 3PL with a national presence, having that, keep me in check Caitlyn, so this isn’t a shameless plug. But we have the network and just because it ships and it originates from a facility in California, doesn’t mean it needs to go back there. We could restock that locally. If it’s shipped to New Jersey, it could stay in New Jersey in one of our facilities as well.
And I think that’s an excellent point because it does create some economies. There’s some logistic things that you need to work through in terms of, if you don’t have a full breadth of skus present at each location, how do you handle that? And not run into higher shipping costs? But it’s interesting, I like the concept of having more drop off points, more ease of use. Now I know you guys have, from your side, you have a delicate balance, because if I’m ordering a fashion product, I don’t want you using a return bar that’s a retail store necessarily. That’s selling fashion. So is that something that you guys have to grapple with depending on the verticals you’re dealing with?
David Sobie: Yeah, absolutely. And I get it. If I sell shoes online, I don’t want to drive my customer into a shoe store to drop the return off. So today we’ve got 2,600 of these locations, they’re all in non-competitive to the core categories. So for example, we have a partnership with FedEx. So we’re in 2000 FedEx office locations. Or we’ve got a partnership with paper source, which sells cards and paper items. Cost Plus World Market, which is more sort of furniture, grocery-ish. I think we can build a huge network 10 X where we are today and still have it be noncompetitive. And if you think about like pharmacy, grocery, office supplies, cosmetics, or 10,000 CVS locations. Or think about all the grocery stores that are out there. Or office supplies, there’s 1100 staples locations.
I think we can build a large non-competitive drop off network that creates what shoppers want, which is convenience. Candidly, what shoppers also want is choice. And for five and a half years at Happy Returns, we’re making the case of drop it off in person versus the mail. I think in the future nobody wants to deal with the hassle and weight of the mail, so I think it’s going to be in person, and what choices do I have? Because it might be that I have another errand and if I can drop it off at say, the grocery store, that’s great because I already have a trip that I need to do there, or the pharmacy, because I have a prescription I need to pick up. Or it’s great that you have this at Paper Source because I have that birthday party this weekend and I can drop off my return and pick up a card.
So I think this idea of the utility of the drop off network becomes really, really important. And the point you raised is totally valid. I think there is still that competitive dynamic, but I think there’s enough physical retail that wants the foot traffic that these returns represent, that is still non-competitive for us to build a large network that’s diverse enough with regard to the types of places that accept returns, that it can be really compelling for shoppers.
Brian Weinstein: Yep. And do you see a point and maybe this is something that’s already happening, you can let me know, but do you see a point where even as the shopper, I don’t even have to log in my return in advance to get my Q code, that the Q codes just come? And so this way, if I’m out and saying, “you know what, geez, I’m going to run out and I do have to stop by Harmon, and I’m going to be there, let me just drop this off, and I didn’t have a chance to go on to the website.” Do you see that getting to a point where we don’t even need to do that anymore?
David Sobie: Good question. I think there’s always going to be this action around… Because if you think about this item eventually is going to make its way back to a 3PL. And eventually that 3PL is going to have to recognize what it is that’s coming back and what order it’s associated with. And even if you have a third party, like Happy Returns, it’s triggering the refund ahead of time, there’s still this need to be able to account for it. So I think there’s always going to be this action that you need to take with regard to starting the return. But what’s interesting is that in our model today, we do this by creating a return portal on the merchant’s website, but there are a number of other third party shopping apps that are emerging, to track orders in one place, that would be a natural place for you to start the return.
And it could be your tender method. It could be an app that’s specifically meant to track your orders, but this sort of shopping companion app that attempts to help you keep track of all of your shopping across the internet is a natural place for a return to be initiated. And that might be outside of the merchant’s website. So I think there’s even a new layer or merging of, shopping companion is the best way I think about it, of all those things that I want from all merchants. I just don’t want to have to keep track of them in my inbox anymore. I’d like them all to be in one place. Because the reality is I’m going to shop from lots of different retailers, because it’s easy to do that. It’s one click away. But don’t make me track it in multiple places. Don’t make me return it in multiple places. Like I see that coming very soon.
Brian Weinstein: Yes. That’s very interesting too, because even going in and just trying to find receipts and links and things, in my inbox, which is now getting cluttered, and cluttered with more marketing and advertisements and updates on sales and things, that gets very cluttered. So having that would certainly help a lot.
David Sobie: Agreed.
Brian Weinstein: All right. So David, just as we head out here, is there anything for a brand that’s considering return options, things like that? Is there any really one pivotal point that you tell them to consider as they’re going down that road of looking at how to handle returns?
David Sobie: Well, I think there’s a couple vectors as we’re selling. But they end up tending to fall into three big categories. There’s the customer experience, there’s the cost side and then there’s the environmental impact, the sustainability. I always tell folks to focus on the customer experience and to think about returns as part of the whole journey. Because back to where our conversation started, a lot of e-Commerce purchases have returns built into them.
And there’s a lot of research on this idea of, shoppers will review the return policy before they check out. And so when you think about the whole journey, you start to think about… a lot of merchants tend to think about, well, my return rate is, making this up, 20% so it’s only 20% of my customers that are impacted by this. Not true, actually. It’s like a hundred percent of the people because they all looked at the policy before they checked out. And some of them maybe decided not to check out because of what they read. And so for those that did check out and they’re now experiencing this, this has a big impact, as we talked about, whether they come back and shop from you again. And especially in a world where you’re paying to acquire customers, you can’t afford to lose them there. I always come back to this, think about returns as a part of the journey that impacts who shops your site, impacts whether they check out, and has huge impact on retention and lifetime value. Get it right.
And invest in getting it right. As I said, I just don’t think the modern shopper has any tolerance for printing labels. Has any tolerance for finding a box, wrestling with packing tape, and most importantly waiting. Because we’ve all had that experience, “I dropped it off. Okay. Now I need to make a note to check my credit card statement”. And then a couple weeks have gone by and you’re like, “but I didn’t see the refund. When did I send it back?” And now I’m going to take a half hour of my day and dig out the order number and call customer service and track it down? Or am I just going to be mad? Am I just going to be like, never again. And so I think that the same way we don’t have a ton of tolerance for slow shipping or paying for shipping. I think the idea of like friction free your returns is just becoming table stakes.
Brian Weinstein: Yeah. Absolutely. It’s a great point. That cost of customer acquisition is just so high. When you finally do land a customer, you’ve got to do everything you can to hold on. Awesome. Well, listen, I really appreciate you coming on. It’s been great. I’m sure there’s a lot of value that’s coming out and it’s going to make people think and ask more questions. So we would like to reserve the right to have you back one of these weeks and maybe for a cocktail episode.
David Sobie: Awesome. Thank you, Brian. Thank you, Caitlin. This was fun.
Brian Weinstein: Thank you so much. Caitlin, you want to take us out?
Caitlin Postel: Sure. Thank you, David. And thank you everyone for listening, you can subscribe at sippingandshipping.com or check us out on your favorite podcast platform, apple podcast, Spotify, whatever works. Give us a thumbs up. Subscribe. Love to have you guys here and we’ll see you guys soon.
Brian Weinstein: Thanks everybody.