Not all sales are final.

In fact, more than half--54 percent--of all customers surveyed by research firm WBR Insights last year said they had returned at least one gift they received during the holidays. This year, UPS has said it expects to handle as many as 1.9 million returned packages per day in early January. For retailers, that means significant resources spent processing returns and repackaging them to be sold again.

Santa Monica-based startup Happy Returns wants to help with that. Launched in 2016, the startup acts as an outsourced returns department, providing retailers with software and logistics support to make the process easier. For a monthly and per-item fee paid by the retailer, the startup handles the returns process and prepares products to be sold again. This holiday season, the startup will help e-commerce companies like Huckberry, Revolve and American Giant handle the surge in returns that retailers experience every January. 

Happy Returns co-founders David Sobie and Mark Geller met nearly a decade ago while working for online apparel retailer HauteLook. When the company was acquired by Nordstrom in 2013, they pitched their new parent company on a program that would allow HauteLook shoppers to return their items at Nordstrom Rack stores, eliminating the need to go to the post office and wait a week or more for their refund to process. Rack would get the benefit of some additional foot traffic--and customers who suddenly have extra cash to spend. "A win-win," says Sobie. 

After some convincing, Nordstrom agreed. "We all threw five bucks in a pool in the office," says Sobie, "and everyone had to guess what percent of HauteLook's returns would find their way to Rack six months after launch." Guesses ranged from low double-digits to a high of 30 percent. "Fast-forward six months," Sobie says, "and the number was 72 percent."

The program's success inspired Sobie and Geller to branch off and try to create a stand-alone business based on the same concept. In 2015, they secured a $2 million seed round from Upfront Ventures and Lowercase Capital, convinced a handful of clients to pay for their services, and launched the following year.

Today, the Santa Monica-based company has $25 million in total funding and a client list that includes other e-commerce retailers such as Everlane, plus brick-and-mortar companies like Bed Bath & Beyond, Paper Source, and shopping mall owners Westfield and Simon. Customers can return items bought from any of Happy Returns' clients to a return bar at any of its partners' stores. Store employees process refunds using the Happy Returns software, stick the product in a reusable tote bag, and place it in a container to be sent to a Happy Returns hub. Once the items arrive, the startup prepares them to be resold--steaming, folding, repackaging--and sends them back to the respective retailers in bulk.

"Returns are expensive and cumbersome, and there are a lot of challenges that go along with handling them," says Travis Heard, CFO of online apparel brand Outerknown. That's why the company was convinced to pay for Happy Returns' services in 2018. Now, all of Outerknown's returns are handled by the startup, with mailed returns getting sent directly to a Happy Returns hub for repackaging. Happy Returns also operates a returns portal on the company's website, where customers are prompted to answer a few brief questions about their issue with the product. If it's something like size or color, they're presented with similar items that might work better.

For Outerknown, which previously didn't have an exchange process, the new system has allowed the company to convert nearly 30 percent of its returns into exchanges--which amounts to an additional 3 percent in annual sales.

Happy Returns isn't the only startup trying to create a solution for the $369 billion of merchandise that gets returned to U.S. retailers every year, about 20 percent of which comes during the holidays. Washington, D.C.-based Optoro creates software that helps companies optimize reverse logistics--the process of routing returned products--while San Francisco-based Returnly offers a platform through which customers can exchange for new products before they've sent back their items.

For Sobie, the hope is that customers will look for the Happy Returns logo on a company's website when considering whether to make an online purchase. He might be on to something: According to a survey by cloud logistics firm Voxware, 95 percent of shoppers say how well retailers handle returns influences their decision to order from them again.

As the calendar turns to January and customers try on shoes that don't look right and shirts that don't fit, many will soon learn what Happy Returns is all about. "For returns," Sobie says, "this is a magical time of the year."

Published on: Nov 30, 2019