When UPS posted its worst trading day ever following a disappointing earnings report in July, there was one “bright spot,” according to company executives, and it had very little to do with traditional shipping.
Instead, it was UPS’s package returns business that got a boost from a young company called Happy Returns, which developed a clever system for consumers and retailers to process returns of online purchases. While Amazon, Walmart and express delivery services continue to set high customer expectations for fast delivery speeds, the amount of goods purchased online that are ultimately returned continues to be a problem for retailers and product brands alike.
On average, customers return more than one in six items purchased online, according to the National Retail Federation. But in some categories, such as apparel and fashion, the problem is much worse: Depending on the type of clothing, return rates can range from 30 to 60 percent. These numbers can have a devastating effect on a company’s bottom line. Customers’ expectations that returns should be free have exacerbated the problem.
That’s where Happy Returns comes in. Since its founding in 2015, the company has sought to reduce return costs for retail brands – especially those that have few or no physical stores of their own. Think digitally native brands like Allbirds, Gymshark, Faherty and Figs.
The service also offers online shoppers a cheaper and sometimes easier way to return goods they bought online but not from a major retailer such as Amazon, which can subsidize free returns, or other mass retailers that can accept returns at major chain stores.
And the model is starting to pay off for UPS, which bought the nine-year-old company from PayPal for $465 million in the fall. (PayPal had acquired the venture-backed startup for $275 million in 2021 before selling the assets last year following a CEO change.) On the recent earnings call, executives cited Happy Returns as a key contributor to UPS’s 3% year-over-year growth in returns business.
The Happy Returns model supports a model known as “buy online, return in store,” or in industry parlance, BORIS. The company sets up “return bars” in physical retail stores like Ulta Beauty that are willing to accept packages from other retailers and brands — especially those that have either no or very few stores of their own. Online retailers or brands pay Happy Returns a monthly fee to allow their customers to return orders at any Happy Returns location nationwide, whether it’s another brick-and-mortar retail partner store or one of roughly 5,000 UPS Store locations.
Online fast-fashion giant Shein, for example, partners with Happy Returns so its customers can return orders at any of Forever 21’s approximately 300 stores in the U.S. When a Shein customer makes such a return, Forever 21 offers a discount if the Shein customer purchases something in the store during the same visit.
The end customer sees the “Happy Returns” option on the retailer’s website when navigating to the returns page, and can then return just the product itself with a QR code and no shipping box. The refund is often processed immediately. And the online brand responsible for the return saves money by having a large box of returns shipped back to them from the returns location, rather than an individual box from each customer.
Anh Vu-Lieberman has seen this firsthand. She is an executive at Nogin, a company that manages e-commerce operations for apparel brands such as Hurley, Scotch & Soda, and Bebe. In the last year, eight of Nogin’s brands began offering a Happy Returns option to their customers. Across these brands, Nogin has realized savings of about $1 million, according to Vu-Lieberman. About half of these savings are due to fewer customer service contacts related to questions about the status of a refund, since Happy Returns typically initiates a refund at the time of product drop-off. The other half is largely due to convincing customers who chose the Happy Returns drop-off option to opt for a merchandise exchange rather than a refund. Some brands offer additional incentives to encourage customers to make an exchange.
So far, more than eight out of 10 Nogin brand shoppers have chosen the Happy Returns option – rather than the option to return goods they no longer want or need by mail. Typically, Nogin brands charge fees for returns, whether mailed by the customer themselves or dropped off at a Happy Returns counter, even though the first option is cheaper for customers. While Happy Returns recommends its business customers offer free in-store returns, Nogin has eschewed this approach, saying it still has some benefits.
This is the reality for companies that aren’t called Amazon.
“There are no truly free returns,” she said.
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