Solving the $800B returns crisis — starting with baby gear
Is American retail innovation dead? At Maveron, we have asked ourselves that frequently, especially as vaunted new retail concepts have failed to achieve their aspirations time and time again. After all, the only scaled retail giants founded in the past decade were arguably the Chinese deep discounters Shein and Temu, on account of financially advantageous factory relationships in China. And that comes with clear downsides.
And yet, retail innovation is part of the American story. Every decade has seen great retailers emerge, from Macy’s to Amazon. So the question for us isn’t whether or not a great retailer will emerge, but where it will come from. Our belief is that the next generational retailer will be off-price and focused on returns. Allow me to elaborate.
The trend in retail that is causing the most heartburn amongst CEOs is the rise of retail returns, which was estimated approximately $816 billion by the National Retail Federation (NRF). This astonishing figure represents about 16.5% of total U.S. retail sales, compared to 5–8% in the 1980s and 1990s. The numbers are even higher in e-commerce, where a staggering 20–30% of products are returned and the reverse logistics cause costly operational challenges.
What do you think happens to most of these returns?
Well, they end up either in the landfill or sold to companies known as “jobbers” for pennies on the dollar.
That leads into our investment in Rebelstork, the leading retailer of baby returns sourced from dozens of leading baby brands and big retailers such as Target. We are proud to have led the $18 million Series A, joined by Serena Ventures and Marcy Ventures.
Before detailing why a baby returns merchant will become America’s next great retailer, let’s take a walk back in time. On a personal note, I love reading history, even as my role is so focused on the present and future.
America’s storied retailers all began with a key earned insight that enabled new category creation. Macy’s realized customers didn’t want to bargain for prices; they instead favored a broad assortment of goods. Sears reached rural customers with mail order retail for the first time. And Walmart brought big box retail to these same rural customers.
Americans love a bargain, so warehouse clubs like Price Club (now Costco) gave customers who bought a membership access to bulk goods at low prices. Similarly, TJX and other off-price retailers provided a new way for manufacturers to unload excess inventory, with great prices for consumers. Further waves of disruption included category specific retailers like Home Depot, who brought big box selection and low prices to different categories. And, finally, online retail, and the convenience of perusing eBay’s marketplace and one click purchasing at the “everything store”.
The following chart shows these retail innovators. Note the sheer quantity of revenue each of these generated at its peak.
Many of these great retailers had humble beginnings and were founded to serve a narrow niche. Richard Warren Sears, a railroad station agent in North Redwood, Minnesota, first entered the retail business when a shipment of watches was refused by a local jeweler. Seizing the opportunity, Sears bought the watches himself and sold them at a profit to other station agents. This initial success led him to establish the R.W. Sears Watch Company. Likewise, Best Buy was originally founded as Sound of Music by Richard M. Schulze and James Wheeler in St. Paul, Minnesota. It began as a small specialty store focused on high-fidelity stereos and other audio equipment. Its pivotal moment? When a tornado hit one of Sound of Music’s largest stores. The resulting “Tornado Sale” attracted massive crowds due to deeply discounted prices on damaged goods. This event helped Schulze realize that customers were highly responsive to discount pricing and a broad selection. And last but not least, Amazon famously started off as an online book store before quickly selling everything under the sun.
Rebelstork is in the early innings of its story, but is off to a prolific start. Founder and CEO Emily Hosie is an experienced off-price merchant, sourcing millions of products for Saks OFF 5th and TJX. During her travels to dozens of retailers and manufacturers, she came to realize that returned product sat in a dusty corner of most warehouses, left to be landfilled or dumped to “jobbers” buying merchandise for pennies on the dollar. Many retail stores and brands didn’t have the infrastructure or operational processes to handle the returns effectively. There were open boxes and packaging, there was a need to do QA and there was the fact that returns all looked different.
The problem was especially acute in the baby gear and goods category, where quality assurance was particularly important. So Emily was inspired to leave TJX and started Rebelstork. She learned that sourcing returns wasn’t that simple compared to overstock inventory. So over the years, she has compiled a team of experts from TJX, from Zulily, and from across the retail world to be able to effectively build the operational infrastructure required. The team developed QA processes to ensure the products were safe for kids. They did the IT and integration work required to work with large multinational companies. They put in the hours to secure approval from C-level management and even company boards, given the complexity of these integrations. These things are hard to replicate and they have led Rebelstork to already become the leading 3rd party seller of baby returns in North America.
As a result, Rebelstork is delighting customers, with savings of 30% or more on new items. Retail partners have also been thrilled by the experience, which is moving them towards a more sustainable future. There’s also a practical business case. Rebelstork turns “lost” returns inventory into “found” revenue for retailers. It’s clear to us that the best is yet to come. At Maveron, we expect to see more brands and products, more categories, omni-channel ways to get access to Rebelstork products and millions of loyal customers. So in summary, we are thrilled to support Emily as she builds Rebelstork into America’s next great retailer.
