Retail returns are on the rise, according to Optoro. The company, which provides returns optimization software to Internet Retailer 2018 Top 1000 retailers such as Staples Inc. (No. 5), Target (No. 17) and BJ’s Wholesale Club (No. 347), raised $75 million in equity funding this week. Revolution Growth, Generation Investment Management and Tenfore Holdings all participated in the round. The series E funding round brings Optoro’s total raised to more than $200 million.
“E-commerce has really changed the game for retail returns,” says Optoro CEO and co-founder Tobin Moore. “Not only is it driving an increase volume, but it’s also more complex. Returns can be sent back to distribution centers or returned in physical stores, and oftentimes inventory can differ by channel.”
Optoro, which caters to larger retailers with higher return volumes, helps merchants manage both in-store and online returns. The software finds the best place for the returned merchandise to go, whether that’s back on store shelves, to an e-commerce fulfillment center or to another reseller. Optoro will use the new cash to invest in research and development and tackle returns even earlier in the process.
Moore says return rates are as much as three-times higher for e-commerce purchases than for purchases bought in stores, and the overall rate of returns grows about 10% year over year. Last year, Moore says consumers returned $380 billion worth of goods, and those returns cost a retailer much more than the initial free return shipping that many retailers now offer.
“Returned and excess goods are often shipped five to seven times while a retailer searches for a second home, all the while depreciating in value,” he says. “The shipping costs can be astronomical, and retailers are unable to recoup value lost in the return.”
But returns also are a boon to customer experience and loyalty. While accepting returns in stores can lead to more shipping fees for merchants if the return is destined for a warehouse, 54% of consumers make an additional purchase when they return a product to a store, according to Optoro’s research.
Retailers also can alter policies around returns. L.L. Bean (No. 35) cut down its famous return window from the buyer’s lifetime to one year after finding that 15% of returns were abusive, with the company stating it cost them $250 million over five years.
Others determine abuses through analysis such as discount department store Saks Off Fifth (owned by No. 36 Hudson’s Bay Co.). Its returns policy states: “To ensure a positive shopping experience for all our customers, if we identify through electronic analysis an unreasonable return pattern, we may restrict or refuse future transactions from such customers at Saks Fifth Avenue OFF 5TH or at SaksOff5th.com.”
However, cutting costs in the reverse supply chain may be more beneficial, with Moore noting that 71% of shoppers will buy again from a retailer that they had a positive returns experience with.
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