The e-commerce boom has spurred growth and innovation in the reverse logistics industry.
As consumers are turning away from purchasing products in traditional brick-and-mortar stores in favor of buying those same goods online, the need for enhanced reverse logistics services is becoming increasingly more apparent.
When products are purchased in stores, the rate of return is roughly 8 percent, but for goods purchased online, the return rate jumps up to 30 percent, according to Carly Llewellyn, director of marketing and communications at Optoro, a Washington, D.C.-based technology company that provides end-to-end reverse logistics solutions.
Parcel giant UPS in December invested in the company through its Strategic Enterprise Fund. Although financial terms of the agreement were not disclosed, UPS said it would partner with Optoro to enhance its own retail reverse logistics services.
“Retailers are facing a growing number of challenges, with the rise of customer returns being one of the most prominent, totaling over $260 billion in value annually in the U.S.,” Optoro Co-Founder and CEO Tobin Moore said in a statement announcing the UPS investment.
“As e-commerce grows, returns will become an increasingly glaring challenge for retailers,” added UPS Chief Commercial Officer Alan Gershenhorn. “Through this UPS Strategic Enterprise Fund investment, we are expanding our returns solutions supported by one of the fastest growing companies disrupting the reverse logistics process.”
Some of the well-known retailers Optoro works with include Jet.com, which big box retailer Walmart purchased in September for $3 billion; Target; Best Buy; Home Depot; BJ’s Wholesale Club; and Groupon Goods.
And this isn’t UPS’s first foray into investment as a means of research. The company has developed a habit of investing in tech startups in the logistics and transportation space as a way to peek under the hood and potentially gain access to disruptive technologies before they enter the market or are scooped up by competitors.
In February 2016, UPS participated in a $28 million Series B funding round for same-day delivery startup Deliv, a company that uses regular people to deliver packages on a flexible, “on-demand” schedule, similar to the now well-known “gig” taxi companies like Uber and Lyft.
These minority investments give UPS an inside look at the technologies driving innovation int a given space without the high capital costs and risk associated with purchasing a company outright. Arch-rival FedEx, for example, paid $1.4 billion to acquire third-party logistics provider and reverse logistics pioneer GENCO in 2015.
According to UPS, shoppers in 2016 returned over 1 million packages on the company’s National Returns Day alone, and more than 5 million packages during the its peak returns week.
And according to the company’s “Pulse of the Online Shopper” study, online consumers have seen marked improvements in returns programs made by retailers over the past five years. Between 2012 and 2016, respondents reported fewer issues in regards to paying for shipping and restocking fees for returns, and delays in receiving credits or refunds.
Under its partnership with Optoro, UPS will manage transportation for the returns, picking up unwanted products and bringing that merchandise to the retailers or manufacturers from whence they came. It’s here that Optoro will step in, Matthew O’Connor, a UPS spokesperson, told American Shipper in a phone interview.
O’Connor said there’s no simple formula for handling returned goods. For instance, items still wrapped in their original packaging may take different paths than goods that are broken or have already had their tags removed.
Llewellyn said Optoro will scan the returned items into its system, OptiTurn, in order to determine the most profitable course of action for each parcel.
Traditionally (without Optoro), when items are returned in store or shipped back to a retailer, they sit there for a couple of weeks before getting sent to a distribution center, where they sit for a few more weeks. The returns process often involves a host of middlemen before goods can be repackaged and are finally sent to the “second” consumer, which can take anywhere from four to six months, Llewellyn explained.
Due to the long timeline and inefficient nature of traditional reverse logistics services, goods often depreciate in value during the process, causing some retailers to throw out as much as 30 to 40 percent of their returned merchandise, she said. Electronics in particular depreciate at a rapid rate, as newer models are constantly being introduced to the market.
Optoro’s goal is to cut out those middlemen to get goods back to the retailer or manufacturer and then to a secondary consumer more efficiently, usually within 60 days, Llewellyn said.
And much like the e-commerce market that has spurred the need for more efficient reverse logistics services in the past few years, Optoro is growing quickly. The company recently closed a $30 million Series D funding round, which not only included participation from UPS, but additional financing from existing investors, including Revolution Growth, Kleiner Perkins Caufield & Byers, Generation Investment Management, Tenfore Holdings, SWaN and Legend Venture Partners, and the Maryland Venture Fund.