When UPS posted its worst-ever day on the stock market after 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, which has gotten a boost from a young company called Happy Returns that has developed a clever system for consumers and retailers to deal with returns of online purchases. While Amazon, Walmart, and express delivery companies continue to set customer expectations high when it comes to fast delivery speeds, the amount of merchandise bought online that ends up being returned continues to plague retailers and product brands alike.
On average, customers return more than one out of every six items purchased online, according to the National Retail Federation. But the issue is far worse in some categories such as apparel and fashion, with return rates that can run as high as 30% to 60% depending on the specific type of clothing. Those numbers can prove devastating to a company’s income statement. The challenge has been exacerbated by customer expectations that returns should be free. Amazon, as the largest online retailer, popularized the practice on large swaths of its catalogue, creating pressure for competitors to do the same.
Enter Happy Returns, which has been trying to help bring down return costs for retail brands—especially those who don’t have any, or many, physical stores of their own—since it was founded in 2015. Think digital-native brands like Allbirds, Gymshark, Faherty, and Figs.
The service also provides online shoppers a less expensive, and sometimes easier, way to return goods that are purchased online but not from a giant retailer like Amazon that can subsidize free returns, or other mass retailers that can accept returns at a large chain of stores.
And the model is starting to pay dividends for UPS, which bought the nine-year-old company from PayPal in the fall for $465 million. (PayPal had acquired the venture-backed startup in 2021 for $275 million, before selling off the asset last year following a CEO change.) On its most recent earnings call, executives called out Happy Returns as a main contributor to the 3% year-over-year growth of UPS’s returns business.
The Happy Returns model facilitates a model known as “buy online, return in store,” or BORIS in industry lingo. The company sets up “returns bars” inside physical retail stores like Ulta Beauty that are willing to accept packages from other retailers and brands—predominantly ones that have either no stores of their own or very few. Online retailers or brands pay Happy Returns a monthly fee so their customers can return orders to any Happy Returns location nationwide, whether inside another brick-and-mortar retail partner store or one of around 5,000 UPS Store locations.
The online fast-fashion giant Shein, for example, works with Happy Returns so that its customers can return orders at one of the approximately 300 Forever 21 stores in the U.S. When a Shein customer makes such a return, Forever 21 offers a discount if the Shein customer purchases something from the store during the same visit.
The end customer sees the in-person Happy Returns option on the retailer’s website when they navigate to the returns page, and then can return just the product itself with a QR code and no shipping box necessary. 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 individual ones from each customer.
Anh Vu-Lieberman has observed this firsthand. She’s an executive at Nogin, a company that manages the e-commerce operations for clothing brands like Hurley, Scotch & Soda, and Bebe. Over the last year, eight of Nogin’s brands have started offering a Happy Returns option to their customers. Across these brands, Nogin has recorded around $1 million in savings, according to Vu-Lieberman. About half of those savings have come from decreased customer service contacts related to questions surrounding the status of a refund, since Happy Returns typically initiates a refund at the time of product drop-off. The other half has come largely from convincing customers that choose the Happy Returns dropoff option to opt for a merchandise exchange instead of a refund. Some brands offer added incentives to nudge customers toward an exchange.
Thus far, more than eight out of 10 shoppers across Nogin brands have selected the Happy Returns option—versus a mail-in choice—for bringing back merchandise they’ve decided they no longer want or need. Typically, Nogin brands will charge fees for returns whether shipped by the customer or returned to a Happy Returns counter, though the former option is cheaper for customers. While Happy Returns advises its business customers to offer the in-store return option for free, Nogin has eschewed that approach and says it is still reaping some benefits.
These are the realities for companies not named Amazon.
“There is no such thing as truly free returns,” she said.
Update: This story was updated to provide more context about industry practices with respect to product returns.
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