Online sales reached $1 trillion last year, and of that, $218 billion of merchandise was returned, according to the National Retail Federation. What’s more is that for every $1 billion of items sold, retailers incur over $160 million in returns.
We’ve seen companies get creative — for example, Amazon teaming up with Kohl’s in 2019 for returns and Happy Returns partnering with retailers like Staples last year. The “online shopping boom” led to more returns thanks to consumers getting “used to ordering multiple sizes, colors or variations of a product to try out at their leisure, and then return what they don’t want,” Rick Berger, president of NewStore, told bluehillco. The platform enables retailers to run their stores on the iPhone. In addition, “customers have also been conditioned by the e-commerce giants to expect a fast, simple and free return process, regardless of who the seller is.”
Those new habits have made returns a big expense for retailers. While they work on making it easier for the customer to return merchandise, startups, like ReturnLogic, say the underlying problem is really operational deficiencies in the returns process.
The Philadelphia-based company provides returns management software for e-commerce brands and retailers, bringing together technology, including customer relationship management, third-party logistics, inventory management and shipping all together under one umbrella. Users can plug in ReturnLogic’s APIs and access data they can use to make product, process, manufacturing, and procurement changes to improve their bottom line and satisfy customers.
Company founder and CEO Peter Sobotta founded ReturnLogic in 2015 after a long career in reverse logistics. He started paying attention to the new generation of modern e-commerce companies showing up over the past five years. What he noticed was that they had “relentless focus on data and lifetime value, but they simply couldn’t get that,” he said.
“We saw a nice surge from COVID, everyone did, the tsunami wave hit,” Sobotta added. “The trends we’re seeing right now are retailers are taking returns much more seriously. Because when it comes to investment, dollar for dollar, if you have a place to park money right now and you’re trying to trim costs, but you have a 30% to 40% return rate like most apparel companies do, investing $1 in returns goes straight to the bottom line.”
In the past seven years, ReturnLogic has processed over a half billion returns and grown to serve hundreds of online brands and retailers, including Groove Life, EchelonFit, Oofos, Decathalon, Dossier and The Sak. It also handles third-party warranty returns for large retailers, including Amazon, Walmart and Best Buy.
Now it is ready to expand and took in $8.5 million in Series A funding from an investor group, led by Mercury, with participation from Revolution’s Rise of the Rest Fund, White Rose Ventures and Ben Franklin Technology Partners. The new capital gives ReturnLogic a total of $11.5 million in equity.
Blair Garrou, managing director of Mercury, told bluehillco that much of the returns software is still early and focused on getting customers to exchange products rather than other ways of returning, for example, if there is a warranty issue or other reason.
“Young direct-to-consumer brands don’t really know when they’ve hit this operational inefficiency with returns until they hit $40 million, $50 million or $100 million in revenue,” he said. “It wasn’t until I talked to Peter, with his background, that it really came clear to us and it made sense. Capacity planning, and understanding what your long-term value for customers is, is something that the market is kind of maturing into. Peter’s team has their finger on the pulse of that.”
Though the returns industry is still up-and-coming, Garrou says there are a lot of companies focusing efforts here. ReturnLogic also joins other companies, including Seel, Loveseat, FloorFound and Loop Returns, tackling returns. Some, like Saara, which raised $1 million to date, are trying to do it in a more eco-friendly way.
Gaurav Saran, CEO of ReverseLogix, a cloud-based returns platform that raised $20 million last year, told bluehillco that spreadsheets and manual processes are not cutting it anymore for returns management.
“This is why increased investment for technical upgrades is flowing into this area of the supply chain,” Saran said. “Although returns have often been overlooked regarding supply chain issues, optimizing them will have an out-sized impact, from efficient returns and repairs to sustainability goals, labor management, and even new revenue opportunities. That’s why I believe a returns management system will become its own solution category within the supply chain.”
Indeed, IBISWorld estimates the U.S. product returns management market to be valued at $10 billion this year.
Meanwhile, ReturnLogic has made seven new hires in the past, and Sobotta says plans are to use the new capital to increase its 35-person workforce to 50 by the end of the year, especially in product development. In addition, the company will expand its API offerings and lean into its sales model.
The company is working with Shopify, but plans to expand to other platforms, Sobotta said.
“Our vision is to be the operating system of returns on any platform and workflow, which makes us so special because that is an incredibly difficult thing to do,” he added. “A big step for us this year is demonstrating that to the markets we serve as we open up additional platforms and a broader base, which leads into our growth potential.”