Happy Returns: Solving the biggest challenge facing ecommerce and omnichannel retail

If you’ve ever shopped online, you know firsthand that online returns can be a huge challenge. Unbeknownst to most outside observers, online shopping returns cause all sorts of problems for ecommerce providers too. The process is broken. For everyone.

Specifically, commerce related returns are a costly, inefficient process that zap online retailer margins, tie up valuable inventory, and all too often result in frustrated customers. Adjacent to this imperfect merchant-consumer dynamic are traditional multi-channel retailers, whose offer of convenient, in-person, local infrastructure all too often falls on deaf ears. As an investor, this type of market-wide friction creates a great investment opportunity.

But as an operator, I also felt the pain firsthand. When I was the CMO of HauteLook, returns were a problem child for our online-only business. They were relatively high volume because of the fit challenges associated with selling fashion products, and we knew that a friendlier return

could drive higher conversion and more active engagement. But the math didn’t really work with free return shipping (thank you Zappos for making that an industry standard), plus the restocking workflow was a nightmare for our otherwise well-oiled outbound fulfillment infrastructure. All told, returns made seemingly happy, profitable customers a tax on the company’s bottom line and inventory management process. Like many online retailers, we made progress, but never solved for it all.

But when HauteLook was acquired by Nordstrom in 2011, we immediately began sketching out an in-person return option for HauteLook shoppers, since proving out this workflow was a major part of Nordstrom’s thesis for the acquisition. The promise was clear: if we could offload HauteLook’s reverse-logistics burden onto an existing, distributed physical retail infrastructure, the business economics would look dramatically different, increasing order conversion, customer loyalty and even incremental store traffic. Oh. And our customers might prefer it as well.

Boy, did the customers respond. By 2014, over 75% of all HauteLook returns were returned in person at Nordstrom Rack stores (a fact I can reveal now that Nordstrom has commented on it publically). You read that right — the vast majority of online purchases are being returned to a physical store. Nordstrom appreciated the customer satisfaction implications to HauteLook — and the more than 1 million incremental Nordstrom Rack store visits driven by these in-person returns. Under the hood, the picture only got better. Not only were in-store returns less costly to HauteLook, the collective Nordstrom Rack /HauteLook business was retaining greater share of wallet through consumers who chose to redirect their refunds into a new in-store purchase during the same visit.

Of course, most online retailers don’t have an in-store partner like Nordstrom Rack. So talk to any online or multi-channel retailer and you’ll hear the same litany of complaints — online returns are a serious challenge for the ecommerce and marketplace categories. Finding a way to address this friction across the board would be an online retail game-changer.

That’s why I’m thrilled to announce that Upfront is leading the $1.9 million seed round in Happy Returns, in conjunction with great partners at Lowercase Capital and Maveron, as well as personal investments from IVP partner Dennis Phelps and Trunk Club founder Brian Spaly. Happy Returns is targeting this “buy online, return in person” opportunity in a way that has the potential to satisfy online shoppers, online retailers, and even traditional brick-and-mortars.

Happy Returns is brought to you by former HauteLook SVP of Marketing & Business Development, David Sobie, and former HauteLook Head of Mobile, Mark Geller. Both were instrumental in building out the in-store returns program at HauteLook / Nordstrom (even after I left HauteLook). They’ve built it, they’ve seen it work, and I believe they uniquely know how to create a universally satisfying solution.

The Happy Returns Return Bar pilot launches at the Santa Monica Place mall on April 16, with peer-to-peer re-sale marketplace Tradesy as the first online retailer to offer this in-person returns solution. Expect the service to ramp in the coming months, covering more online retailers and physical return locations. Eventually, we believe that all online purchases will have the option for either an in-person or traditional postal mail return.

I expect in-person returns to be a win for online merchants (increasing net sales by eliminating customer service friction, reducing return shipment costs, and creating liquidation optionality for lower-value items.) I expect in-person returns to be a win for brick and mortar partners who will see potentially significant incremental, qualified consumer foot traffic (who may have just collected refund dollars to spend in-person.) And I expect in-person returns to be a major win for online shoppers, for whom the packaging, shipping and return of online purchases remain a major PITA.

I don’t think it’s overkill to say that a service like Happy Returns can shift the balance of power in e-commerce, increasing consideration, share, and retention for companies that effectively solve the returns problem. I could not be more excited to work with David and Mark to reimagine the way millions of consumers experience online shopping in the future.

Happy Returns: Solving the biggest challenge facing ecommerce and omnichannel retail was originally published in Upfront Insights on Medium, where people are continuing the conversation by highlighting and responding to this story.