- Retail returns are estimated to be a $500 billion-problem without a simple solution.
- Investors are starting to look at startups targeting particularly tough elements of the conundrum.
- Returns startups may end up joining together to create complete solutions, according to experts.
Handling retail returns — especially e-commerce returns — in a way that keeps unwanted goods out of the waste cycle and able to be repurchased again quickly is a tough problem to solve. So tough that retailers often prefer to dodge the issue altogether, telling shoppers to keep unwanted items even after receiving a refund.
But the process of handling returns — known as “reverse logistics” — also presents a massive opportunity. AlixPartners estimates the value of all the refunds for stuff that actually stayed with consumers will total up to $4.4 billion across the retail industry. And Tony Sciarrota, president of the Reverse Logistics Association, says annual US returned merchandise could be valued as high as $500 billion.
With a problem that large, tech startups are certain to rush in.
Software companies are attempting to streamline the process of deciding what to do with unwanted products and designing the fastest or cheapest possible routes for them to travel. Some startups take in returns from customers and consolidate them on retailers’ behalf to make the shipments more efficient and economical. Others pick up returns directly from consumers’ homes to get them back to retailers faster.
Funding’s heating up
Historically, dedicated reverse logistics startups have received a fraction of the venture capital delivery companies get. Jose Tamez, who’s currently raising a seed round for his startup Re-turnz, said retail executives often balk at spending money on technology that could grow the volume of returns.
That thinking is shortsighted, said Ben Whitaker, the CEO of Reconomyx, a startup that grades the quality of returns. "Your best customers are the ones who return the most," he told Insider, because they tend to buy the most to begin with. "If you don't want your returns to grow, you might as well say I don't want to grow my business." Whitaker is bootstrapping his company.
Since returns are a multi-faceted problem, the solutions must be, too. Preventing returns is about sizing and product design. Mitigating returns even after a customer has decided to send something back is about smart user experience to encourage the best outcome. Getting goods back fast means smart logistics. Assessing the condition of goods requires smart tech to remove the need for worker expertise from the equation. And then reselling an item needs skilled refurbishing services and slick resale platforms.
Many logistics incumbents and startups bake reverse logistics into their offerings. But more tech startups are forming and fundraising to bite off one segment of the returns problem. As they do, and as awareness grows, venture investor interest in the space may be picking up, at least according to Eric Wimer, founder of Texas-based startup ReturnMates.
Wimer, an Uber alum, sees a wave of investment in dedicated returns tech just beginning as founders figure out the right business models. "Investors care a lot right now about unit economics for businesses like this," he said.
The future is consolidation
Gaining expertise in one element of the returns equation, though, isn't likely a long-term play, said Sciarrota. This niche within logistics startups is probably headed for a lot of consolidation, since retailers would rather work with fewer partners than more — especially in an area that at best, minimizes cost rather than bringing in solid revenue.
"The less touchpoints, the less costs are incurred. So you need to really focus on what partners are out there who are capable of moving it, refurbishing it, reselling it, shipping it, et cetera," Sciarrota said. "There are partners who do that — not many — and those are the ones that I think will long term last out."
Here are nine dedicated reverse logistics startups investors have placed bets on as the space matures — and the money starts to come in.
Total raised: $78 million
Loop Returns is a software platform that aims to automate returns and encourage shoppers to exchange their item or take store credit over a refund. For products that do need to go back, it generates shipping labels. Upon the announcement of Loop's $65 million Series B, in July, cofounder Jonathan Poma told TechCrunch that the company had grown its team from 20 to 100 in the last two years. The 5-year-old startup's lead investors include CRV and FirstMark.
Total raised: $20 million
Founded by Microsoft alum Gaurav Saran, Reverselogix is a software-as-a-service platform dedicated to managing and optimizing returns by making them simpler for consumers and helping retailers offer multiple options for collection, including printing shipping labels. In 2021, private equity investor Cambridge Capital led the 10-year-old startup's first funding round after years of bootstrapping.
Total raised: $6 million
Founder Eric Wimer, an Uber veteran, describes Returnmates as first and foremost a pickup service, with applications in retail returns and resale sites. The startup picks up returns and works with retailers to orchestrate shipping or drop-off at a store or local warehouse. It raised a $5 million seed round led by LightShed Ventures in September.
Total raised: $4.6 million
Returnlogic targets Shopify sellers by offering a central place for operations teams to manage returns, from tracking goods to evaluating their condition to getting them back into inventory. It partners with fulfillment companies catering to small and medium online sellers like Quiet Logistics, ShipHero, and Ruby Has. The company raised a $2 million round in 2020 from Revolution's Rise of the Rest Seed Fund, among others.
Total raised: $390,000
QuikReturn is targeting urban consumers, most of whom do not have printers or cars. It picks up unwanted items and consolidates them onto pallets so that retailers can more easily take them in at warehouses. Cofounder Ethan Susser is a veteran of Walmart and Flexport. He raised $390,000 in pre-seed funding in 2021 led by Plug and Play.
Total raised: $360 million
Optoro aims to reduce costs associated with returns by streamlining processes and minimizing shipping. The company allows retail clients to offer shoppers a branded returns portal, instant credit, and contactless drop-offs in stores. The startup also helps retailers sell returned goods on their own websites and on marketplaces like eBay and Amazon. Optoro's most recent round is a $25 million late stage investment led by warehouse technology firm Zebra Technologies. Optoro clients include Staples, Best Buy, Ikea, Target, and Bed Bath & Beyond.
Total raised: $64 million
Narvar calls itself a "post-purchase" technology specialist, managing the consumer experience for both package tracking and returns for Levi's, Home Depot, Sephora, and Patagonia. It's also developing return drop-off centers with Simon Property Group. The company's most recent round of funding was a $30 million Series C round, led by Accel in 2018.
Total raised pre-acquisition: $25 million
Acquisition price: undisclosed
Happy Returns was acquired by PayPal in 2021 after about six years of operations with $25 million raised in four rounds. The company is known for its multi-brand "return bars," where customers can bring their unwanted purchases. Happy Returns then assesses the condition and consolidates the returns into pallets to make them easier for retailers to receive. The company has been particularly popular with direct-to-consumer retailers like Rothy's and Everlane, and works with traditional brick and mortar retailers like Staples.
Total raised pre-acquisition: $24.5 million
Acquisition price: $70 million
Founded in 2014, ZigZag Global was acquired by Global Blue, a tax-free shopping firm, in 2021. ZigZag is a software-as-a-service platform that partners with retailers like Boohoo and Topshop to track returns, make them paperless, assess the condition of the item, and ship them back to new customers or stores if they can be resold.