Can making order returns easier for online shoppers lead to bigger business for e-commerce sites? A new startup from two Nordstrom vets is attempting to convince people that it can.
David Sobie and Mark Geller have raised $1.9 million in seed funding for their startup, Happy Returns, which is pitching e-commerce sites on allowing customers to return purchases to Happy Returns kiosks in brick-and-mortar stores or malls. The goal is to let online shoppers get free, instant refunds by returning orders to a physical store — an option that the founders believe will lead to increased sales.
“When you make it significantly easier to return items, people buy more,” Geller said.
The duo also believe that partnering stores and malls will benefit from the increased foot traffic at a time when many of them desperately need it. The startup is launching a pilot test with clothing resale site Tradesy that will let its shoppers return orders to a Happy Returns location on the second floor of the Santa Monica Place shopping mall.
Happy Returns plans to generate revenue by charging e-commerce companies a per-item fee when a purchase gets returned to one of the return bars. That fee will include the cost of shipping the orders back to the company, but the founders say it will be less than what it would cost the site to pay for return shipping itself since the startup will consolidate multiple returns into a single shipment.
The founders think they can also eventually charge the retail stores or malls for the new foot traffic, but Happy Returns is the one paying up for the mall space in the pilot test. Long term, the startup believes there’s also the potential to generate revenue by selling returned items that e-commerce sites don’t want back in instances where the shipping and restocking fees will eat up any profits they could make by reselling it themselves.
Both Sobie and Geller worked for flash-sale website HauteLook before and after it was acquired by Nordstrom in 2011. After the deal, Nordstrom allowed HauteLook customers to return items to Nordstrom Rack discount stores, which boosted HauteLook’s sales and brought tons of new shoppers into Nordstrom Rack stores, the two said.
Returns from HauteLook and NordstromRack.com led to more than a million incremental visits to Nordstrom Rack stores in 2014, the company said at the time. In a survey commissioned by Happy Returns, 78 percent of online shoppers said they would be more likely to shop at an e-commerce site that had an option for in-store returns.
Greg Bettinelli, HauteLook’s former chief marketing officer and a partner at Upfront Ventures, believes e-commerce sites will eventually realize the value of giving customers more options for returning items.
“They can be so overly focused on free shipping and personalization that they don’t realize that having a cumbersome return process creates ill will pre- and post-transaction,” he said.
Upfront Ventures led the seed round, while Lowercase Capital and Maveron also participated.
The Happy Returns launch comes at a time when some trends are working with it and some against it. On the positive side, Saks parent company Hudson’s Bay said that a big factor in its decision to buy Gilt Groupe was the promise of younger Gilt shoppers visiting Saks Off 5th stores to return Gilt orders.
At the same time, more shopping sites are offering returns for free, and startups like Shyp are trying to capitalize on the preference of urban professionals to have packages picked up from them for a small fee. Shyp dispatches couriers to pick up items shoppers want to return, and charges them $5 for the luxury, on top of the postage fee.
Sobie admitted Shyp’s model may appeal to some, but his startup’s survey found that the vast majority of Americans would rather return to a store for free rather than pay extra to have a return picked up.
This article originally appeared on Recode.net.