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Backed by Max Levchin, this startup wants to solve e-tailers’ returns nightmare

by Marjorie van Elven
5 Nov 2019

Shopping online is easier than ever, thanks to services such as same day delivery, “buy now, pay later” and real time shipping updates. Returning an item, however, isn’t always a seamless process. Customers often have to print a return label (“who owns a printer these days?”, wonders the average Millennial), pay for the costs of sending the items back, not to mention waiting several days -- sometimes even weeks -- to receive a refund.

And that’s just the customer’s side of the story. Ecommerce return rates have grown by 95 percent in the United States over the past five years, according to returns optimization platform Optoro, which forecasts return deliveries to cost US retailers 550 billion dollars by 2020 -- that’s 75.2 percent more than four years prior. LA-based retailer Revolve, for example, earned 499 million US dollars in sales last year but spent 531 million on returns. Across the pond, in the UK, returns are predicted to increase by 27.3 percent in the next five years, hitting a total of 5.6 million pounds by 2023, according to a recent study by GlobalData. Black Friday returns alone have cost UK retailers some 1.6 billion pounds last year. That’s because a growing amount of consumers (44 percent in the UK, according to Barclaycard) have come to expect free returns, as they do free shipping.

Fashion retailers are hit the hardest by return costs. Online giant Asos, for instance, estimates that 25 percent of women’s orders are returned. The company has recently set a new shipping policy targeting “serial returners”: people who buy clothes only to take a photo for Instagram and then send them back.

Returnly, a San Francisco-based startup founded in 2014, is looking to solve this problem -- or at least part of it. The company offers shoppers instant store credit when they decide to return an item. The credit is issued before the shopper even sends the original item back, which means Returnly takes the product returns risk for the merchant. This way, the company hopes to drive consumers to shop again at the same store, decreasing return-generated losses and increasing customer loyalty. Additionally, the startup offers an online tool for retailers looking to improve return management.

With hundreds of clients including Untuckit, Thinx, Decathlon and Outdoor Voices, Returnly currently employs a team of 65 and plans to double in size over the next 12 months. The company raised 19 million US dollars in April in a Series B funding led by venture capital firm Craft Ventures and PayPal co-founder Max Levchin, who currently runs the “buy now, pay later” fintech Affirm.

Earlier this month, Returnly launched International Returns, a service allowing shoppers to easily return items online from anywhere in the world. “Traditionally, returning an online purchase across borders has been a highly manual and complex process requiring shoppers to contact customer service for individual instructions,” said the company in a press release. “This is just the beginning of a time-consuming and frustrating process that often includes language barriers, additional customs forms, border restrictions, and unanticipated costs. Returnly’s solution makes international returns as seamless as domestic returns”.

FashionUnited spoke with Returnly’s founder and CEO Eduardo Vilar to learn more about the company’s business model, trajectory and future plans.

Eduardo Vilar (center) with Chief Technology Officer Marcos Sainz (left) and Chief Revenue Officer Greg Lazarus (right).

Tell us a little bit about yourself and your career trajectory before founding Returnly.

I’ve always had an entrepreneurial spirit. Prior to Returnly, I founded a number of technology ventures, including Ticbeat.com, an online media company that was later acquired by Axel Springer, and Lotojuegos.com, the first online marketplace selling the official range of Spanish lottery products worldwide. I was also director at The Founder Institute, where I helped launch a startup incubator in Spain which assisted tech entrepreneurs to build enduring companies.

How did the idea for Returnly come about?

Prior to founding Returnly, I did predictive analytics for large online retailers in San Francisco. Through that work, I was able to see the challenges that online retailers faced with returns, a process that has been broken since the start of ecommerce. Asking shoppers to wait for a return to be processed before they’re refunded is a bad shopping experience and big point of friction. I found that customers who had a positive return experience become hyper loyal to those brands and spend more money with them. That’s what sparked the idea for Returnly. I founded the company to help entrepreneurs and brands offer this same instant gratification for shoppers to create a better customer experience.

Does the strategy of giving customers “instant gratification” work? Can you share with us data about how much the repurchase rates are increasing, on average?

It absolutely works. In the age of Amazon, shoppers are being conditioned to expect everything instantly, and the non-Amazons are often left struggling to keep up. Returnly’s payment platform lets shoppers buy again using return credit before even packaging or shipping back the original items. When customers are offered the instant shopping experience, buying propensity goes through the roof: shoppers become three times more likely to buy again and outspend the original size of their order by 23 percent.

Tell us about the other tools offered by Returnly. What else does the company offer retailers?

Returnly provides tools that help merchants manage returns through their entire lifecycle, from label generation, to returns processing and restocking and order refunds. Returnly has also developed a turn-key solution around its core post-purchase payments technology that includes returns management tools for large scale retailers and fully brandable end-customer touchpoints like order and returns packaging tracking.

We also recently announced the availability of International Returns, a new solution which lets global shoppers quickly and easily return items online from anywhere in the world. With global commerce on the rise, International Returns assists both shoppers and retailers: localizing the international returns experience, enabling retailers and brands to expand into new markets and build stronger relationships with global shoppers.

In your opinion, how can e-tailers improve their return policy?

The bottom line is that customer-centric brands and retailers have realized that in order to build loyalty with modern consumers, they need to offer an amazing, frictionless shopping experience. This must include the post-purchase experience. The winning companies in this group have clear and easy to understand return policies that lower their customers' cost of returning items.

Name a key moment you’re proud of in the Returnly’s history.

There have been so many for us over the past few years, but one of the moments we’re most proud of was surpassing 100 million US dollars in returns credit issued. We’re very proud to see the impact that this financing has had in helping our customers turn what used to be a cost center into a new channel to grow their business and reach their goals.

How many companies use Returnly’s services today?

Returnly has hundreds of merchants using its post-purchase payment platform, and hundreds more that are currently only using its returns management suite.

Returnly has quite some prominent clients so far, including Untuckit, Fanatics and Outdoor Voices. How were those partnerships established? Did you pitch the service to them or did they come to you?

Retailers are looking for better ways to do returns, it’s a major pain point for them and their customers. So they were very happy to hear from us and in some cases found us by using Returnly as a shopper themselves, which we always love to hear.

Congratulations on the series B funding! How will this capital injection be used?

The new financing will be used to help Returnly grow its merchant services and expand its product offering. This includes expansion for omnichannel customers to support their “Buy Online Return In Store” offerings.

Pictures: Returnly Facebook, courtesy of Returnly