Cadillac Fairview, Teachers and ex-Shopify exec gamble on a new, old model for online returns: showing up in person

CEO of ReturnBear, Syliva Ng, at the company’s downtown facility in Toronto.Christopher Katsarov/The Globe and Mail

The cardigan was right back where it started.

After an online shopper clicked the buy button, the gray top was loaded into a delivery truck at the Toronto warehouse of online clothing retailer Franc for a trip across the city. But, as with so many items bought on the internet, it was soon returned for a refund.

The online retail industry’s return process has long been fraught. It bogs down supply chains, adds costs and takes a toll on the environment through fuel burned during all that transportation – and through products that end up in landfills rather than being resold.

One waystation during the cardigan’s return trip was the offices of a company that is hoping to change all that. Led by Shopify Inc. veteran Sylvia Ng, with backing from mall heavyweight Cadillac Fairview Corp. Ltd., Toronto-based ReturnBear Inc. has spent the past year and a half pitching itself as an alternative for retailers that are fed up with the cumbersome and costly process of online returns. The startup grew out of Koru, the venture studio of the Ontario Teachers’ Pension Plan, which also owns Cadillac Fairview.

“Now, across North America, every year over $760-million worth of goods are being returned,” Ms. Ng said. Many online retailers tell her that 20 per cent to 25 per cent of their goods are sent back.

Guest Service Representative Aarapi Thayananthan scans a returned item at the ReturnBear drop off location in Toronto’s Eaton Centre.Christopher Katsarov/The Globe and Mail

ReturnBear’s sales pitch to those e-commerce players: The company will manage the logistics, cut costs, and handle sorting and quality control, allowing them to restock items more quickly so that they can be resold rather than thrown away.

The company achieves this promised efficiency in part by having customers return items in person at one of 14 drop-off points in Cadillac Fairview malls across Canada, rather than by mail. To convince shoppers to take on that burden, ReturnBear promises faster refunds, with no need to print labels or repackage items for shipping.

With the growth in e-commerce has come a spike in product returns. These happen at a much higher rate than for items bought in stores, where customers can see products in person, test samples or try on clothing before buying. According to the National Retail Federation, an industry association, in the US the average rate of returns was 16.6 per cent for all purchases last year, but the rate for online returns was 20.8 per cent. (The Retail Council of Canada does not collect data on returns.) Depending on the retailer, the rate of online returns can be between 20 per cent to 40 per cent, with roughly one-quarter of those ending up in landfills, according to a July, 2021, report from Colliers Canada.

That’s expensive. Mail-in returns cost $14 on average to ship, Ms. Ng said, which eats into profits for retailers who offer free return shipping, and can deter shoppers from buying in cases where returns aren’t free. Even before the spike in fuel prices, some retailers tried to offset those costs by charging “restocking” fees, or by requiring customers to cover the costs of return shipping. Encouraging people to drop off returns in person is another cost-reduction strategy.

“With inflation, with gas costs and transportation, these margins are getting smaller and smaller. Anything the retailer can do to protect those margins is going to be key,” said Jane Domenico, senior vice-president and national lead of retail services in Canada with Colliers.

ReturnBear keeps costs down by gathering items into batch shipments, which are cheaper than having each customer mail an item back individually. Eventually, the company wants to cut down further on shipping by offering to hold items for retailers and ship them directly out to the next buyers.

“The environmental benefit of that is just so much stronger,” Ms. Ng. said.

But ReturnBear has a long way to go to reach a scale matching its ambitions. It currently works with just 10 e-commerce retailers. It’s a small operation: Returns are sorted and shipped from one room in Koru’s Toronto offices.

ReturnBear’s operations associate Nicolette Bertsch sorts a bag of returned items.Christopher Katsarov/The Globe and Mail

On the day of a Globe and Mail visit, operations associate Nicolette Bersch picked up the most recent returns – the cardigan among them – from a guest-services kiosk in Toronto’s Eaton Centre. She put them in a tote bag and walked to the Koru offices. The human-powered transport is an option only at this one location: Other drop-off points have to ship the products for processing at Koru. The company is planning to open more processing hubs in other parts of Canada, and some in the US for cross-border returns.

By the end of the year, Ms. Ng said, she wants ReturnBear to be working with hundreds of retailers, including large household names. It is in talks to sign on more drop-off partners in a variety of locations – maybe even convenience stores.

“This will only be environmentally friendly if we get to the point where it’s convenient enough and it’s a close enough distance that you ideally end up either walking, or it’s along your existing commute line,” Ms. Ng said.

Ms. Ng joined Koru in 2021 after three years as a director and general manager overseeing product development at Shopify. She began leading ReturnBear when it was little more than a cub, as the team built software to run retailers’ online return portals with the drop-off option prominently displayed.

As online shopping grows in popularity, Cadillac Fairview has a vested interest in working with digital vendors – and in finding creative ways to draw customers to its malls. “We were hearing from a lot of retailers about their dramatic shift to relying on e-commerce,” said Laura Manes, Cadillac Fairview’s senior vice-president of innovation. “If you couldn’t operate your store, you quickly realized there was a gap in your returns process.”

E-commerce apparel brand Franc, the source of the traveling cardigan, had long struggled with both the logistical challenges of returns and the stress they brought to customers.

“We were really just trying our best to make it easy for the customers with the tools that were available – which, for the most part, weren’t great,” said Franc founder Brandy Mercredi. Offering faster refunds to customers has been a big improvement, she added.

As online shopping grows in popularity, Cadillac Fairview has a vested interest in working with digital vendors – like ReturnBear – and in finding creative ways to draw customers to its malls.Christopher Katsarov/The Globe and Mail

ReturnBear’s offering is a more obvious sell to online-only brands such as Franc than to those that are tenants of Cadillac Fairview, who would likely prefer that customers come back to their stores for returns – where they might buy other things – rather than drop them off at a mall kiosk. But if drop-off locations expand beyond the mall and into people’s neighbourhoods, that could change. ReturnBear is hoping customers see the appeal of its style of returns, and that brick-and-mortar retailers see the advantage as they look for better return options for their growing e-commerce services.

Similar services are attracting investment in other markets. Last year, a US startup called Loop Returns closed a US$65-million financing round, with participation from Ms. Ng’s alma mater, Shopify. Loop’s software handles returns for retailers, and allows customers to drop items off at FedEx and Walgreens locations without having to print labels. They scan QR codes instead.

Also last year, PayPal acquired Happy Returns for an undisclosed sum. The company pledged to save money for retailers by operating more than 5,000 in-person “Return Bars” in the US at FedEx locations and in stores, including Staples and Ulta. If PayPal launches the service in Canada, ReturnBear would face some well-funded competition as it tries to sign up new retailers.

It’s uncertain how long it might take to grow that customer base, as ReturnBear tries to scale up its one-room operation. At Koru’s offices, Ms. Bersch examined the cardigan: no stains or tears, tag attached, no unfortunate odors and all buttons accounted for. She folded it and tucked it into a reusable bag, then placed it in a box set aside for Franc items. After waiting a handful of days for the box to fill up and the shipment to go out, the top arrived back at the warehouse and was restocked, ready to sell to another online shopper.


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