Why competing ecommerce returns companies are merging

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The competition in the e-commerce returns space is intensifying, prompting some companies to join forces.

Last week, Shopify returns provider Loop and PayPal’s Happy Returns announced a partnership that will enable Loop users to offer box-free, label-free returns at Happy Returns’ 5,000 service locations. Last year, 16.6% of products were returned, up from 10.6% in 2020. according to NRF. As consumer returns heat up, competing returns providers are teaming up – offering brands more ways to save in the returns process.

Founded in 2001, Loop primarily handles plug-and-play site integrations of return features like automatic exchanges without speaking to employees. Founded in 2015 and acquired by PayPal in 2021 for an undisclosed amount, Happy Returns primarily focuses on box-free, label-free returns. Happy Returns works with other brick-and-mortar retailers like Paper Source and Staples to allow customers of brands like Levi’s and Rothy’s to drop off returns at their stores.

Loop, which supports returns for more than 1,200 Shopify brands like Allbirds or Princess Polly, wanted to offer sellers offline returns capabilities. Loop has historically focused on developing online features that help e-commerce brands simplify or reduce returns — for example, by asking shoppers to exchange products instead of returning products. Happy Returns, meanwhile, will gain better access to more Shopify merchants. Loop President Aaron Schwartz said that while Happy Returns and Loop were viewed as competitors, the new partnership will allow each vendor to focus on their areas of expertise: offline returns logistics and online returns software, respectively.

Loop users can now accept a wider range of returns through the PayPal service. Essentially, buyers can drop off unwanted products at various Happy Return locations and receive a refund immediately. These buyers don’t even have to pack or ship the products themselves, just hand them over to Happy Return employees.

“Happy Returns is great at logistics,” Schwartz said. “Until I would say Q4 2022, we were [provider] agnostic…what we eventually realized is that many of our brands – particularly in the Shopify ecosystem – are looking for guidance or partnership to figure out how I can optimize my reverse logistics stack and operations.”

Happy Returns isn’t Loop’s only return option. Through partners like Ship Hero, FedEx, and Klaviyo, Loop offers home pickup, item donation, and item consolidation. Happy Returns will also expand Loops’ brand and customer options.

“They move from individual packages back to the facility to … a collection point, to larger collection points and then back to the facility,” Schwartz said. “There’s always a trade-off that it takes a little longer to get inventory back…but there are big cost savings for a lot of brands.”

Loops has long been in what Schwartz calls the “pixel” business rather than the “package” business. Traditionally, Loop has focused on building the online portion of the returns process in-house – offering plug-and-play integrations with brand websites to simplify the returns process online – and relying on partners for parcel shipping logistics.

For example, using Loop’s technology, a shopper from clothing brand MadHappy could return a t-shirt without having to speak to a brand employee. Loop would prompt that customer to exchange that t-shirt for a different size or color instead (instead of returning it) and ask users why they’re returning or exchanging it. Brands may also choose to use Loop’s prompts to give consumers additional credit for exchanges on returns or to provide specific buyers with personalized returns offers.

While Loop’s team debated building more “parcel”-driven products like pickup and delivery logistics in-house, the company instead opted to focus on the digital experience instead.

“We want to build partnerships with the best parcel service providers,” said Schwartz.

Happy Returns, meanwhile, will simply expand its reach with better access to Loop’s many e-commerce branded customers. Happy Returns offers some of the same software integrations as Loop, but its biggest differentiator as a returns provider is its numerous personal returns bars. Loop’s differentiators, meanwhile, are iterations of digital prompts and software, and close partnerships with Shopify vendors.

“Making returns beautiful has always been our mission—whether that experience begins on our portal, a partner’s portal, or the retailer’s own portal,” said David Sobie, co-founder and vice president of Happy Returns in a press release about the partnership. “Our collaboration with Loop is a natural extension of our Return Bar offering as we both put shoppers at the forefront of ecommerce exchanges and returns.

Online shoppers return offline

Loop and Happy Return’s partnership signals a larger shift towards brands and retailers integrating their online and offline returns process.

For example, in 2019, Kohl’s partnered with Amazon to offer Amazon product returns at all Kohl’s stores. Just this week, Zara introduced online returns fees to encourage in-store returns.

Neil Saunders, managing director of GlobalData, explained via email that this type of integration makes sense given the inflation in shipping and delivery prices.

“One of the key reasons for this is that it’s often more cost-effective to do returns in person, as the products can be processed and sent back to the returns centers in one go, rather than having the returns come in one at a time – the shipping cost of which is often borne by retailers,” said Saunders.

Saunders added that these types of integrations can also help with cross-brand traffic. For example, an Amazon returnee could look at Kohl’s products when they’re already there.

Schwartz said he believes the consumer is also driving these online and offline return integrations. “70% — in that space — of people will look at a return policy before making a purchase,” Schwartz said.

While returns have traditionally been anathema to brands, Schwartz said brands should rethink the returns process. The Happy Returns partnership allows Loop brands to group returns together more conveniently, and other Loop features like exchange requests can limit the amount of products returned.

“Post-purchase has always been viewed as a cost center, but the smartest brands recognize that it’s a revenue driver,” Schwartz said. “The people who come back a lot are bad customers by definition, but they could be people who really love your brand. They experiment with your brand to find what they love so they can buy more.”

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