How reverse logistics companies like Happy Returns are preparing for an onslaught of online returns

At the same time, retailers are bracing for ho-hum holiday sales growth. Holiday spending in the U.S. this year is expected to grow between 2.5% and 3.5% over 2023, slower than last year’s growth of 3.8%, according to the NRF. That equates to between $979.5 billion and $989 billion in total holiday spending in November and December, compared with $955.6 billion during the same timeframe last year. 

The growth in returns this year is in part driven by online shopping. Americans will be doing most of their holiday shopping on their phones and computers as inflation-pinched consumers hunt for deals online. Online spending in the U.S. is expected to total $240.8 billion in November and December, according to Adobe, 8.4% higher from 2023 and the biggest increase since 2021. 

Returns pose a significant challenge for retailers due to the high costs and operational complexities involved. As Amena Ali, CEO of returns solution company Optoro put it, “For a $100 item, it’s nearly $30 that the retailer incurs in processing that return.” This cost stems from various factors, including discounting, transportation and the manual labor required to process and inspect returned items.

Reverse logistics and software companies like Happy Returns have stepped in to help brands bring down costs associated with online returns, especially during the holiday season when gift returns tend to spike. Last year, United Parcel Service bought Happy Returns for $465 million. UPS bought Happy Returns from PayPal, which acquired the startup in 2021 for $275 million. To date, Happy Returns works with nearly 1,000 brands and retailers, including Shein, Everlane and Forever 21. 

Happy Returns partners with brick-and-mortar retailers that are willing to accept packages from other brands. Happy Returns calls these third-party locations “return bars.” The company charges merchants a monthly service fee, so customers can return items they bought online without boxes or affixing shipping labels. Happy Returns has around 8,000 return bars, over 5,000 of which are UPS stores. 

This holiday season, to manage the glut of returns and their associated costs, Happy Returns is relying on a combination of robotics and automation, data-driven forecasting and user-focused design to handle the surges in returns volume during the peak shopping season. 

For one, Happy Returns has been able to rapidly scale up industrial automation in its hubs by tapping into UPS’s technology and engineering resources. In early 2024, Happy Returns and UPS collaborated with Geek+, a robotics company, to transform Happy Returns’ East Coast hub in Shoemakersville, Pennsylvania into an automated returns hub. It’s the only use of reverse logistics robots outside of the Amazon ecosystem, according to Happy Returns. It took less than six months to outfit the hub with at least 150 robots, which can each carry up to 44 pounds. 

As a result, Happy Returns is accelerating processing times at its East Coast hub. After just 30 days of implementing Geek+ automation, the company saw improvements in processing accuracy and a decrease in product loss. The median time for returning items to retailers was reduced by 35%. Happy Returns says this will help the company manage the influx of returns, not just during the peak holiday period but also throughout the year.

“We’re currently working with UPS to continue to develop a multi-year vision for automation,” said Tim Fehr, Happy Returns’ COO. “There’s a lot of strength in the scale and experience that UPS has when it comes to this kind of stuff that we’re benefiting from.”

Happy Returns’ growing reliance on automation and robots also reduces the need for temporary staffing during busy periods because they can increase the utilization of the automated systems to handle higher volumes, Fehr said. 

With five fewer days between Thanksgiving and Christmas this holiday season, Happy Returns is relying on data-driven forecasting to ensure all its resources are in place to handle the influx of returns during the peak holiday season. 

“What the calendar means for us is it’s going to be more concentrated,” said David Sobie, Happy Returns’ co-founder and CEO. “In a year where there’s less time, there’s going to be a bigger peak earlier.”

For example, Happy Returns looks at its own past return volume data to identify patterns and trends. This allows it to predict with greater accuracy when the major return spikes will occur. Happy Returns also tracks when retailers like Amazon and Walmart have their big holiday sales events like Black Friday and Cyber Monday, so they can then forecast the corresponding return volumes that will follow those sales.

Still, Happy Returns says its holiday prep boils down to ease of use. 

“I think the best thing we can do is make the process easy and simple, even at times of peak busyness,” Sobe said. On average, each Happy Returns transaction takes about 30 seconds, he added.  

Yet, despite the progress made by companies like Happy Returns, the problem of returns will not go away anytime soon. 

“The underlying trends are one of increasing returns, increasing volumes,” said Optoro’s Ali. “And so the question is, ‘Can you stop that onslaught of returns? And I think the answer is, for the most part, no.”