Transcript 0:00 Hi, everyone. I'm Christine Russo, and welcome to What Just Happened? Today, we have Tim Fehr from Happy Returns. Welcome, Tim. Hey, welcome. 0:07 You've been in the media a lot so hopefully I can try to cover some different angles to what's new out there, 'cause I think what you're doing is really interesting. So let's get right into it. Welcome, Tim. Cool. 0:18 Thank you. Uh, is the storm over right now? Do you get a breather f- in terms of returns? Oh, yeah. You know, December, January's a big peak but we, for a very long time, we've been a pretty f- fast-growing company. 0:30 So our volume kinda looks like this, if you can see. Like it- there's seasonality in it of course, but there's a trend line up. We don't really have a on-off season. 0:40 But there's peaks and troughs as it climbs up over the- Correct. Yeah. Usually December, January is the peak but then by March we're over that December number. Yeah. What do you do then? What... 0:49 You've launched these, you launched the robots on the dance floor to great- Yep... success. A- are you just, "Okay, let's go. Pedal to the metal," now? Yeah. Let's see. We, we tried very hard to, to 1:03 get the robots in before peak, which we succeeded in. So a cool, better together story with UPS. We got acquired in November of '23. 1:14 Uh, we had done some preliminary work on automation, uh, before but no- not, you know, wasn't that good. We had forgotten about that. 1:22 And then joined with UPS or talked with some people, saw all the automation they were doing, kinda put together a plan in six weeks, eight weeks. 1:29 We placed an order in February, and then we went live in our first facility in August. So we moved pretty fast. We've been growing a lot, um, particularly with UPS. We wanted to pull that forward. 1:39 So we got it in place in our last facility by November. So December was still pretty new. We, December was our busiest month ever with our highest tran- the, our lowest transit time ever and our lowest loss rate ever. 1:52 Robotics played a big role in that. That said, we were still figuring some stuff out. Our performance, our, our ability to use robotics got better December, January, Feb. So now we're, like, fully hitting our stride. 2:03 And at the moment we're now putting together a, another plan for 2025. 2:09 So we roughly doubled our automation in 20- or, sorry, roughly doubled our productivity in 2024 with automation, and we're looking for a similar, uh, lift again. 2:19 So we're very heads down on crafting our, our new automation plan, and we hope to bring all that online again this year but before peak. You might get robots for the unloading, so we'll come back to that. 2:29 But once the boxes are in their place o- on the floor, you, I think you called it the dance floor, the, the robots are, are sorting and moving it and boxing. 2:39 And then when the box is full it goes back to the retailer, and that takes about a week. Are you looking to cut that time down? We are, yeah. We have three facilities, and it depends on where you are there. 2:52 For example, we have a lot of customers who have warehouses in Southern California. We have a facility in Southern California that's same day or next day transportation, for example. 3:02 But in general we're very focused on, uh, transit time improvements in 2025. It's a big company initiative. 3:09 So we are actually looking throughout the entire kind of life cycle of a returns journey and trying to figure out how we can improve every, uh, aspect of that, uh, journey. 3:21 We have a, a rigorous approach to managing, uh, outbound carriers. And so we're, we're always looking at that carrier performance and trying to figure out how we can improve it. 3:31 Um, we ha- we do a number of things actually for outbound transit to speed things up. For example, we have a cross-dock program between our facilities. 3:40 So we've got facilities in, uh, Pennsylvania, Memphis, it's in Mississippi but Memphis, Tennessee area, and then Southern California. So we've got a bunch of retailers in SoCal, for example. 3:51 And we were shipping them just regular LTL from Pennsylvania to Southern California. That can be a five, six-day transit time. What we're doing now is we run FTLs, like dedicated loads, multiple times a week 4:07 from Pennsylvania to our California facility. So that shaves a couple of days off. And then we combine those with the freight in the SoCal warehouse to go out to those retailers. 4:17 We're doing a lot to manage the transit time of our outbound carriers. Yeah. Time is so important for if they're gonna put it back on the shelves. It's, it's crazy. Actually, 4:28 i- is this something you could possibly do, which is dynamic planning? Because, for example, you get something back at the beginning of the season. Obviously, you want everything back as quickly as possible. 4:38 And it's, "You know what? I'll pay more to get this sooner so I can get it back out." Is that something you would consider? Yeah. No, we've, we've thought about it. We've been on a transit time journey. 4:49 Um, robotics has been a big part of that. And our main goal is, hey, how can we make everything faster without, like, affecting our cost structure in a way that would change our pricing? 5:00 Sounds to me like you do not use the UPS fleet to transfer the return, to transport the returns. We do on the inbound side. So from the UPS, from the drop-off points- Drop-off... in-doors. 5:12 So from a UPS Store, Staples, Ulta Beauty, it's a UPS parcel. Outbound we do use UPS parcel for some retailers, smaller ones. 5:22 Larger ones we ship motor freight just because it's, if you're shipping hundreds of boxes at once, you do get savings shipping motor freight for that. So we do use freight carriers for the outbound leg. 5:34 You've been in this space for, since, for a while. Yep. You've been at Happy Returns since 2015. Is it getting better? Is it getting worse? Are people just never gonna change? 5:44 Did we, is the genie ever gonna go back in the bottle with respect to really being thoughtful with purchases? I don't think that people are gonna rewind in terms of their expectations from e-com. 5:57 And I think we've seen a lot of change in the consumer sentiment in the last 10 years. 6:03 In the pre-pandemic era-You had a lot of, well, you had Amazon driving consumer expectations, and you had a lot of venture capital-backed D2C brands who had very customer-friendly expectations. 6:18 Then the pandemic hit, and then for a while everyone was growing like gangbusters, so kinda growth was the customer acquisition and growth were the north stars. 6:27 Then in '22, '23, rising inflation, interest rates, VC money dries up. So there's a much bigger emphasis on cost management than there used to be, but the consumer expectation in some ways continues to increase. 6:40 If you look at Gen Z and their shopping habits, things like bracketing and, uh, showrooming, they're more prominent than ever. I actually think that it will... 6:52 It, it won't go back, it'll move forward in terms of people's expectations for convenience from e-com and particularly as Gen Z becomes a larger share of wallet. 7:02 It's gonna be a bigger and bigger issue for retailers to manage. We talked a lot about bracketing and showrooming in 2017 during the retail apocalypse. Yeah. 7:13 It's not talked about as much, but it's really interesting to hear you say that- There's a big difference between coming to e-com as an adult and being raised as a digitally native e-com Gen Z-er. 7:27 They almost view it as an entitlement. Oh, I... This is what I should be able to do. And that, that is a real business issue for retailers. 7:37 You're coming at it from a very interesting perspective, being that you're in the logistics of returns, where you're basically like, "It is what it is and it's not going anywhere, and we're building our entire business out to support it." 7:48 The whole rest of sustainability choruses and the industry is a lot of hand-wringing, a lot of head-holding, and a lot of disbelief at the amount of returns dollar-wise that the industry is dealing with, and that it should be stopped, and that if it's this, it needs to stop. 8:07 Or since it's this, it needs to stop. And your perspective is, it's not gonna stop. It's going to keep going. It's more right than anything else. And so let's build a better mousetrap to accommodate it. 8:18 Let, let's build a better mousetrap, and I would say we need to be thoughtful about how we manage this issue. So I think about a spectrum of behavior that retailers don't like in returns. 8:35 I, I think it's, I think it's less, okay, just accept this onslaught [laughs] and s- closer to we need to get smarter, we need to get better at, uh, dealing with this. 8:45 We need to find existing solutions which might be, um, under indexing, and we need some new solutions. 8:51 Speaking outside of what we do, which is like someone who thinks about this a lot, I'm frequently surprised at how infrequently merchants are using customer data to drive differentiated outcomes. 9:03 A lot of retailers have a, a pretty strong group of core customers who are repeat buyers, and they're frequently not really doing anything to recognize that versus others from a return perspective. 9:14 So m- my guess is, and we know we're not, we don't do this, but my guess is just one of the ways that retailers will deal with this issue is trying to get less of a blanket policy, more of a, "Hey, look, you're a great return purchaser, so maybe your returns are free," or maybe even get, like, at home pickup for a free price, to, "I have no idea who you are and you just bought 10 things and returned 9 of them." 9:39 Like, th- those are very different customers, and the retailers that I've talked to or worked with, it's a one size fits all policy. 9:48 I love the passion for the entire returns ecosystem, the entire thing from outside of what your day job is into how do I think about this on a bigger level. How else do you think about it on a bigger level? 10:01 I think in today's world things are getting fiercer. 10:06 Things are getting more challenging to pull off, and you have leading businesses flexing on their resources and acumen to deliver experiences that are very hard to keep up with. 10:17 I think what it means to be a e-com company, I think that the core competencies will need to evolve to keep up with what are some very material changes not only to customer expectations, but just the kind of logistics landscape as well. 10:32 So- And also how much ahead the leaders are, as you mentioned. E- exactly. Right. Look, I can order a tube of toothpaste on Amazon and get it in five hours. 10:46 And if I order eight tubes it's free, and if I order one tube it's $3. And this, this is like profoundly different approach. 10:57 And so I think with smaller retailers it's, yeah, they've gotta be thinking really thoughtfully about how they leverage partners, uh, across the whole stack. Outbound, inbound analytics, all of it. Because we... 11:09 I don't want a world in which I can only buy something from two or three people online. That's not a good world. 11:15 And so I think, yeah, retailers have to really be demonstrating a lot of excellence outside of merchandising in today's, um, environment. 11:25 The way you discovered e-com when you were in college, do you think s- personally speaking, will you discover 11:34 shopping via AI assistant, a kind of partner where it's like, "Hey, I'm going to a wedding and there's a brunch and blah blah. Send me some outfit ideas" Do you think you would switch to doing that? Oh, 100%. 11:48 We're in the midst of a new industrial revolution, and so I think many things are gonna change. People have a, like, Web 1, 2, 3. Well, a world in which I'm only getting told what to do is... 11:58 It's not even, it's not even Web 4.0, right? It's like you, you've, you, you've totally... It's almost like AOL, right? When there was a gatekeeper intermediary. 12:08 It's almost, hey, you're not really using the internet, you're using this tool which itself has access to the internet. What about Happy Returns and the data? Now-You're not using AI. Will you use AI? 12:18 Or what form of data? Is there anything going back to the retailer other than the packages? [laughs] Yeah, a decent amount of data. 12:26 I would say, uh, one big advantage about Happy Returns is that we, our software controls the end-to-end experience from starting the return, to dropping off the return, to processing the return in our hub, to getting it back to the retailer. 12:42 So just most people are operating with, oh, there's a bunch of different, uh, partners operating together. 12:47 So we're able to give just much higher fidelity data about the package movement, which doesn't sound super sexy, but it is very valuable for a lot of retailers, uh, to know. 12:58 We also provide a lot of data related to return reasons. Customers will select, "Hey, I'm returning this for that reason," and that's on the item level. 13:06 Retailers do use return reasons frequently to look, okay, look at, let's look at all my highly returned items, look at the reasons. It can inform, like, merchandising decisions about how you're describing. 13:14 It can also s- uh, inform supply. Like, maybe you have two different suppliers for a shirt, and they're making it in different ways or whatever. 13:21 So that, that can inform a number of merchandising and supply chain choices. You mentioned Amazon and s- establishing deli- delivery and return expectations. Yep. Do, do you think they're still doing that? 13:34 And, and how does that weigh on you guys and the forward look and what you all plan to accomplish? We were doing open box returns. We've been doing them for a while. I think they started maybe 2017. 13:48 But don't quote me on that, I'm not sure. But they've educated the market on what an open box return is. Consumers like convenience from retailers. Yeah. 13:57 And one of, when one of the world's largest retailers is, uh, spearheading convenience, which, like most American consumers are experiencing, this creates expectations for them, and everyone has to either keep up with that or potentially lose business to those who are leading. 14:12 And so in the same way that you saw everyone try to catch up on shipping speed, I think a lot of people are thinking, "My customers want open box returns, and so we should have them." 14:22 Um- And so they call you guys because- Yeah, we are, of course, positioned to benefit from that trend. That's good. 14:27 And I think we were successful in covering some new topics that further highlight the innovation and success that's going on at Happy Returns, and the synergistic benefit of being a part of UPS now, and there's more to come in 2025. 14:45 Stay tuned. Thanks very much, Tim. That is what just happened. I'm Christine Russo.
