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EPISODE 10

The New Age of Returns Management ft. Kyle Bertin

In this episode, Kyle Bertin, CEO and Co-Founder of Two Boxes, joins Caleb Nelson to discuss the issues returns cause and what better returns management looks like in the future.

Leadershipping Podcast
Episode Summary

eCommerce returns are a BIG problem.

In fact, the value of items returned by consumers globally reached $1.8 trillion in 2022.

Lots of shippers and 3PLs consider returns a necessary evil – often given little attention to and relegated to a disorderly corner of the warehouse. 

New innovations are unlocking the potential of better returns management, allowing for greater efficiency, insights, and competitive advantages.

In this episode, Kyle Bertin, CEO and Co-Founder of Two Boxes, joins Caleb Nelson to discuss these innovations, and what better returns management looks like in the future.

 

Main Topics:

  • What makes returns a problem?
  • How Two Boxes is simplifying and revolutionizing returns management
  • The importance of returns data
  • Detecting fraudulent returns activity
  • The sustainability impact of limiting returns and waste
  • How optimized returns can become a competitive advantage for brands and 3PLs

 

Other Resources:

Transcript

Caleb Nelson (00:29.995)

Hey, welcome back to another episode of LeaderShipping. Ecommerce growth has been on a steady rise for decades. It’s no mystery that the COVID -19 pandemic gave that growth a massive boost. The increase in eCommerce inevitably is also creating an increase in eCommerce returns. In fact, the value of items returned by consumers globally nearly tripled, which is crazy, capping it at $1.8 trillion in the most recent numbers in 2022. For shippers, returns are an absolute nightmare. They’re costly, unsustainable, and a pain in warehouses. Many have just accepted that they’re a burden and a way of life and that they basically have to endure. But I think it doesn’t have to be that way. Returns can also and should also be improved upon. And that’s exactly what we’re going to be talking about today, with our guest, Kyle Bertin. Kyle, welcome to the show!

 

Kyle Bertin (01:33.038)

Hey, thanks Caleb. I appreciate you having me here today.

 

Caleb Nelson (01:35.947)

Yeah, for sure. I’d love to give our listeners a little bit of background information about who you are and where you came from. If I miss anything, please feel free to correct me. But as far as I know, Kyle is co -founder and CEO of Two Boxes, a software company dedicated to turning returns into a competitive advantage for shippers and 3PLs alike. After beginning his career with a different focus, Kyle fell into logistics roles, as many of us do. And I think once you get it in your blood, it’s really hard to get out of it. He helped shape the strategies of various logistics companies such as Flexport, Outrider. Seeing a need for a returns-focused solution, he co-founded Two Boxes. So Kyle, thanks so much for joining me, man. I’m really excited to be able to chat with you about this. I think there are some really interesting ways that we can have this discussion where we’re going to be talking about. There are listeners right now who are brands themselves and 3PLs are having some serious problems with returns. 

 

My first question to you is what makes returns so dang hard and how did that lead to you starting 2Boxes?

 

Kyle Bertin (02:51.488)

Yeah.

 

Sure thing. Well, yeah, you got the intro pretty much spot on there. So thanks for that, Caleb. Yeah, I think what makes returns hard? I mean, you kind of have to take, I’d say a little bit of a big step back and just think about how supply chains work today, right? Everything in supply chain and logistics is really focused on getting, especially in the last 20 years, is really focused on getting a product from a manufacturer to a consumer’s home, which is a big change, not to a retail store as much anymore. I mean, obviously retail is still a huge, huge component of just purchasing behavior in the United States, but it’s been this big focus on “how do I get a good from a manufacturer to a consumer home, better, faster, cheaper?”

And that’s what companies like Amazon in particular have just created incredible capabilities to do in the last 20 years or so. And because of the way that we buy online now, when you return, most people when they return a purchase that is bought online, they return at rates of 20% or more. Some high return rate eCommerce verticals are 30, 40, 50% return rates.

 

Caleb Nelson (04:07.563)

Yeah, I was going to say there’s probably some products that have a significantly higher return rate just for the nature of it. Shoes, right?

 

Kyle Bertin (04:15.342)

Shoes, most of the shoe brands that we see today on our platform have 30 to 35, sometimes 40% return rates. And so there’s this incredible amount of volume that’s coming back and that’s just frankly a very different problem for logistics operators to deal with, right? Because logistics operators have been used to retail return rates when you return in a store are five -ish percent or sometimes even less, right? So it’s just an order of magnitude difference.

 

Caleb Nelson (04:23.051)

Crazy.

 

Kyle Bertin (04:43.886)

And so I think the biggest difference is, okay, well you have products that are coming back from sort of all points back to single warehouses, right? Number one. Number two, when a product is received and it’s a return, that return actually needs to be inspected. It needs to be confirmed that that’s the inventory that was actually purchased. And then the quality of that inventory needs to be confirmed. Can it be resold as a first quality item to another person like Caleb, or it doesn’t need to be donated or thrown in the trash or something else. And that is just something where it’s very hard to find anybody in the industry who’s thought through this problem at scale and solved it at scale.

 

Hey, when I’m a 3PL who’s receiving a new shipment of goods for one of my brand customers, or like I’ll pick on you, it looks like you’re wearing a Howler Brothers shirt, right? 

 

Caleb Nelson (05:35.979)

Yeah, I love this stuff, right? Yeah, they’re great.

 

Kyle Bertin (05:41.78)

Great brand. So Howler Brothers, when they receive a new shipment of inventory from their supplier. It’s all sorted, it’s all clean, it’s all first quality. They just have to receive that inventory into the warehouse, break it down into individual SKUs, put it away, and then when an order comes in, pick, pack, ship. 

 

Now imagine instead that you get a pallet of returns. That returns is mixed goods, mixed quality, you don’t even know what’s in it in a lot of cases. So it’s a very, very different problem that has a lot more operational intensity.

 

And it’s made worse in the warehouse that most of the customers that we serve are third party logistics providers. And those customers don’t just serve one brand. They don’t just serve Howler Brothers, right? They serve 50, 100, 500 brands per location. And so when you start to think about the kind of motion and complexity here of lots of different brands whose merchandise is coming back from different channels, they sell different things that need to be inspected for different quality conditions – it starts to kind of make your head hurt. And that’s a little taste, I would say, of the problem.

 

Caleb Nelson (06:42.091)

Yeah, I would also, I mean, to you bringing up Howler Brothers, I think that’s one of those things that as a consumer, we all have those moments of, “oh crap, I ordered the wrong size,” which happens. But then it is, every business seems to have a slightly different return policy or process, right? Oftentimes the brands that really care about loyalty, I think really, ultimately, what that is is they are not just thinking about getting the product out the door to my clientele faster, which I think is kind of that first step, right? Fast two-day shipping is on most brands’ minds, but it’s the entirety of that of that life cycle. Hey, if 20 or 30% of my product is going to be returned to me, what does that client experience look like? How terrible actually is it or how difficult are we making returns?

 

I think ultimately that process really depends on a brand’s ability to say, “look, I really care about my client and I want to make the return process easy.” And oftentimes I find that, you know, I’ve got two returns right now that have just been kind of sitting around because frankly, the return process has been really challenging. I think, you know, with all of that in mind,, client experience and the difficulty of just the return process of getting boxes in a variety of conditions with a variety of product from a variety of brands if you’re a 3PL. 

 

Walk us through how Two Boxes help simplify returns management then.

 

Kyle Bertin (08:27.438)

Sure. So you really hit something on the head, which is I think client experience, that end customer, you know, buyer experience has been the biggest focus in returns technology over the last decade. And there’s been a ton of great companies, many of whom we partner with that have built some amazing things like loop returns, happy returns, aftership, Narvar, et cetera. 

 

These companies… I’d say by and large, are there ways to improve? 100%. But it has never been easier for you and I as a buyer to return something that we’ve bought online than it is in 2024. And so that experience is what a lot of retailers and brands have really focused on. Now let’s walk through the return and then we’ll talk about how Two Boxes plugs in.

 

If you buy online, let’s exclude Amazon from this because Amazon’s a little bit of a different beast, very vertically integrated. They have built all their technology, all their returns go back to their own return processing focused warehouses actually. It’s just a little bit different, right? But if you buy something from Howler Brothers, Howler Brothers, I can’t remember who they use. I think it might be Loop. So let’s just say that it’s Loop. You go and return a Howler Brothers shirt because it didn’t fit. You’re going to go to what looks like a Howler Brothers website, but it’s actually a Loop website.

 

You’re going to enter some information to look up your order, you’re going to answer some questions, you’re going to select a refund or an exchange, you’re going to get a shipping label to print out and stick it on the package, or you’ll get like a QR code to be able to drop it off at a consolidation point. Like lots of people have had this experience, I think it’s a pretty good experience for most consumers of being able to walk into a retail location and drop off your return in a boxless, label -less kind of environment.

 

So that experience has been what most people have focused on, right? How do we make it easy for Caleb to get his return back into the parcel network to get it back into a warehouse? And then what people don’t see is then once your returns head back to all these warehouses, right? The majority of those warehouses are not run by the brands themselves. They are run by third party logistics providers who serve lots of different brands, right? 

 

And those 3PLs, as we talked about earlier, have highly optimized these facilities for outbound logistics, for receiving new inventory in that’s fresh and clean and shipping it out to Caleb’s house. Now what’s really become problematic is the way I’ve been kind of describing this recently is all these returns and all this innovation that makes it easier and faster and cheaper for Caleb to initiate his return means it’s like a five lane super highway of returns that come into these warehouses. And nowadays it’s just like a huge pile up in that warehouse where to jump into there, but Caleb, did you have a question?

 

Caleb Nelson (11:28.523)

Yeah, I think it’s really interesting that there is this duality like this double edged sword of the easier we make it, the more loyal our client base is going to be. But the downside is the easier we make it, the more flooded we’re going to have on the complexity of returns that we’re either going to, for brands that are doing it themselves, manhandle and push that through or it falls on a 3PL that they’ve outsourced this to, to process all this through. And I think ultimately, you’ll never be in a bad spot if you put your client first. And I think client loyalty is there, but there’s probably some bad actors in that mix too, right? That, you know, how do you sift through that and how do you, or how are you able to kind of categorize that?

 

I think it’s really interesting that we think of returns as the same thing, but not all returns are created equal, and not all returnees are created equal too.

 

Kyle Bertin (12:35.532)

Yeah.

 

Yeah, no, a hundred percent. And this is one of the biggest things that we focus on. And one of the things that I believe will change most dramatically over the next decade, right? Is I think people really need to understand, like I was having a conversation at the Manifest conference with the CEO of a, or the, the, essentially the, the segment leader for a publicly traded 3PL. And he, he was saying how people really don’t understand that we’re, we’re still in like the earliest innings of eCommerce. Number one, and returns were like, you know, in the earliest of earliest of innings, right? Maybe we’re in like the fourth inning of eCommerce and we’re like the first pitch of returns, right? 

 

And so I think, you know, all these things that we take for granted on how efficient and data -driven outbound logistics are, really weren’t a thing 20 years ago. Right? I mean, I remember, you know, I’m 36 years old. I remember when I was a kid buying like football cleats, there was no, you know, online. I didn’t buy it online. I bought it through an EastBay catalog and I waited six weeks for my cleats to come.

 

Right? That’s a different, it’s a very different, you know, we’re in a different world now. And so what I really think here is yes, there are, there’s very limited ability for brands and 3PLs to actually understand what’s happening in the return stream because they don’t have the right tools. And that’s what we’re enabling now with Two Boxes is we’re building the right tools in the warehouse for any operator or brand who’s running their own facilities to process all their returns, regardless of the channel that they come back, whether they come through Loop or Happy (Returns) or a custom portal or whatever it is, and then be able to inspect that inventory according to the right standard operating procedures or SOPs down to that SKU level of – the shirt you’re wearing has buttons, my t -shirt under this does not. So we’re inspecting them for different attributes, so to speak, and then tracking the ultimate inventory decision of was it first quality or not. And we can tie all that back to the consumer.

 

Caleb Nelson (14:26.047)

Right.

 

Kyle Bertin (14:34.894)

And so this is where, with companies like Two Boxes, and frankly, I expect there’d be many more, and there’s lots of incumbents as well.

 

We’re starting to bring more data into the return stream. And that data in the return stream should impact everything that you’re talking about. Just to give you a sense of scale, last year, according to the National Retail Federation, about 14% of returns in the United States were fraudulent, and they cost retailers and brands over $100 billion alone last year.

 

Caleb Nelson (15:03.173)

I’m sorry, 14% of all returns were fraudulent? That’s crazy.

 

Kyle Bertin (15:08.238)

Yep. And fraudulent, you know, really breaks down into the common things that we see about that same number, by the way, in our data set, we see. And really the things are empty box returns, especially with higher priced goods. It’s, you know, hey, somebody buys a $500 cookware set and returns an empty box. We see that just about every day. Or hey, somebody, the other thing is a return policy abuse, right? Wardrobing as a lot of people will call it where

you know not only does Caleb buy three shirts because he doesn’t know what… you know the good version of Caleb is he buys three shirts and doesn’t know which one’s gonna fit. The bad version of Caleb is he buys three shirts he wears them for two weeks and then he sends them back right uh… we see a lot of that right and so this is where though you’re right it’s not that there is a huge majority of people who are bad consumers but there’s enough of these people who are bad consumers and the purchase and return at such high rates. And there’s actually like literally, Caleb, there’s like telegram communities, books being sold, like all these things online around how do you actually defraud returners basically so you can get free stuff? 

 

So this is the type of thing where we really think that bringing data into this picture enables us to serve the brands and serve our partners as well in a really holistic way of, hey, we can paint a picture of is Caleb a good returner or not? And should Caleb get a great return policy, a bad return policy, or ideally not even be able to purchase from the brand? And that’s really where I think the world is going and needs to go. 

 

And I think consumers need to be a part of the solution as well. I expect that you’ll see a lot of, you know, kind of loyalty programs, that sort of thing pop up where, Hey, Caleb, if you opt in to you know, share your data, et cetera,  you’ll get access to free returns with your favorite brands, right? Because it’s such a big problem and we’re still in the earliest innings of it that retailers and brands are gonna have no choice but to figure out how to solve it.

 

Caleb Nelson (17:16.419)

Oh, absolutely. And I would bet that along with the fraudulent activity, which blows my mind, 14% of returns are fraudulent. And it makes sense, right? You don’t have people who are just stealing. You have people, like you mentioned, that wear the item for a couple of weeks and return it. And they do that systematically. And they are serial abusers of brands. 

 

And I think using data to determine which ones, that not all consumers are created equal, that there’s going to be some consumers that are abusing the system and you should be able to, if you’re a brand, you should be able to use your data to identify which of those consumers are causing you the most amount of pain and/or literally stealing from your business. That makes all the sense in the world to me. 

 

I think there’s also a component of reducing landfill and waste sustainability side of this, right? I mean, a lot of brands I talk to, sustainability has been at the forefront more this year than I’ve seen in the last five, which is really more of a focus on how do I reduce my carbon footprint? How do I reduce how much ends up in a landfill? And how much waste do I have? I’m assuming there’s a pretty good amount of waste with returns.

 

Kyle Bertin (18:36.846)

Yeah, a hundred percent. So these numbers are a little bit old, but from 2022, there were about 10 billion pounds of returns that were landfilled in the United States. And it’s, depending on who you talk to and what, what research reports you read and data you review. The best that I’ve been able to figure out is that about half of returns are ultimately landfill.

 

I’d say there’s a few drivers that we truly believe are the main causes. Number one is just the cost and quality of the item. The sad truth is if you buy a $20 phone case on Amazon, that cost of goods from the manufacturer is like, it can’t be more than $4 for that brand to be making money.

 

Caleb Nelson (19:15.997)

Right.

 

Kyle Bertin (19:33.742)

And so, you know, hey, there’s just not a lot of, it doesn’t make sense, right? To, ultimately tell Caleb to ship the thing back and, and pay for transportation and processing to, to give that thing a second life. This is why Amazon increasingly will tell you, “Hey, just keep these things.” Right. And a lot of those things end up in the trash because people don’t, don’t find a second home for them. So I’d say that’s kind of number one. Number two is just velocity. So going back to this, you know, sort of metaphor of five lane highway merging into a country road in the warehouse, especially around this time of the year, January, February, March. That first quarter is like the return Super Bowl because everybody returns a bunch of stuff that they bought for the holidays. And what you see is a lot of these goods come into these warehouses and because warehouses are really not designed to receive and process them efficiently, they sit for a really long time.

 

I have a brand right now on the screen actually over here that I was just looking at for some case study data where their return volume is in the month of February 10x from January because they were processed through two boxes and that’s because they had this huge backlog of returns from December and January that weren’t processed in the warehouse until February. So 10x increase. Now the big problem with velocity is fashion is perishable and has a very, very steep decay curve. 

 

And so if I buy something in December and it’s not processed in the warehouse until February, March, I’ve heard horror stories of like April from brand operators where, hey, this stuff’s gonna sit there. And even if somebody in the warehouse is doing their job really diligently and determines that, hey, the shirt that Caleb’s wearing is in perfect condition, tags on it, all that, well, guess what? The brand has already fully discounted that and doesn’t want that thing resold and doesn’t want it entering a liquidation channel, especially for highly branded merchandise. So you see that as another waste stream. And then the third one that’s really, we are attacking as aggressively as we can is not only is there fraud in this stream, but there’s also supplier quality issues where it isn’t caught until too late, where we’ve been able to help brands see that, hey, by the way, for example, there’s an apparel brand that we work with where they have about a 90% return to stock rate through Two Boxes. And we noticed that they launched a new SKU and the first about dozen returns that came back were all going into the donation bin and they were all going in the donation bin for the same reason. And so we were able to identify, hey, that’s a supplier quality defect, notify the brand and help the brand save a significant amount of money. 

 

So that’s where I think the returns data is not just usable in a silo. It actually should inform manufacturing. It should inform return policies. It should inform so many other things that it can’t be used for today because it simply can’t be stored and utilized in a scalable way. And that’s what we’re trying to change.

 

Caleb Nelson (22:35.883)

Yeah, and I would think that you’re helping brands be significantly more proactive in their interactions with their customers. And I think that use case of a manufacturing defect and seeing that in real time data would typically go unnoticed for a large brand for I would say maybe a couple of months, if not a couple of quarters. And then it would finally be like, “hey, what is going on with this brand or what is going on with this particular SKU and why are we having problems with it?” 

 

And I think in my conversations with brands, just about every single day, they are focused on “how do I become more, how can I predict things a little bit better? How do I become a little bit more fast and nimble by utilizing data that’s in front of me to make better informed decisions rather than something that is less proactive?” I think that’s a really great call out. 

 

And I would bet that there is a competitive advantage with this process. I mean, if you’ve got listeners here who are brands or 3PLs themselves, why should they invest in a really robust return process? Like, what is the value for them?

 

Kyle Bertin (23:42.764)

Let’s start with the brands. And I actually want to, you mentioned this word predictive, right? There’s one other thing I wanted to talk about in terms of waste and the opportunity to, to, uh, eliminate that, but let’s start with brands. All right. So for brands, like, why do you need to invest in this? I think you need to invest in this because if you’re an average eCommerce brand, you likely have 20 plus percent of your items being returned and it is no longer acceptable from a financial and sustainability and frankly to a certain extent, like, moral kind of perspective to just say like, “hey, we’re not gonna care about 20% of the stuff that comes back. We’re not gonna care if it gets returned to stock, we’re just gonna buy more inventory, so on and so forth”. To a large extent, that was really the attitude when we started the company. If I’m being really transparent, we would talk to brands and we’d say like, “hey,you know, can you tell me anything about your 30% of your stuff that comes back?” And you talk to the CFO of a large brand and they look you in the face and go, “no, I can’t. And honestly, I don’t really care because I’ll just go buy more inventory from my supplier for pennies on the dollar because I’m in a zero interest rate environment” back in, you know, in 2022. At this point, the macro economy has just changed dramatically. 

 

And I think most brands have shifted from this growth at all cost mindset that was really pervasive from like 2015 to 2022 to, “oh gosh, we actually really need to turn a profit and we need to be really thinking about every lever in the business to do that.”

 

And so I think from a brand perspective, if you’re not really understanding your return P&L and you don’t really understand the levers that you can pull to improve that, it’s a huge opportunity for you. 

 

You know, I can just tell you if you’re a brand right now, if you come to me and you tell me like what percentage of your revenue you’re spending on fulfillment, I can tell you like, hey, you’re getting a good deal or not, right? Because it’s just kind of established, but in returns, it’s just such low hanging fruit. And that low hanging fruit not only benefits your P&L, it’s going to benefit your relationship with your logistics providers by using more advanced tools like Two Boxes. 

 

And really it comes back to the customer, right? Because brands right now are really in this pickle of like, how do I enable this awesome customer experience by Caleb initiates his return, he gets his money back right away? Well, by doing that, you’re instituting a ton of risk to use the brand, right? If I give Caleb his refund before I’ve received his inventory, which has become the status quo for a lot of high growth brands, there’s a ton of risk in that decision. And the alternative is, hey, wait to refund Caleb until his item is received and inspected.

 

And that’s not a good experience either because Caleb might wait three, four weeks for his refund. I had a terrible experience like that with a brand that I love. I love this brand. And I’ll still buy from them probably because I just love their products so much, but I sent them a pretty terse email of like, you guys got to improve this, right? So I think that’s sort of on the brand side, right? You’re going to get more profit. You’re going to manage your inventory better. You’re going to be able to predict it better with tools like Two Boxes so we can help brands predict how much inventory is gonna be restocked and likely when based on the data that we have. So we’re helping a lot of brands right now buy less inventory because they can count on the return stream as a replenishment source.

 

And then, last but not least, you’re gonna serve your customers and be a better steward of the planet. So that’s one of my brand pitch. Any comments or questions on that before we talk about 3PLs?

 

Caleb Nelson (27:30.091)

No, I think the loyalty aspect of brands is the Holy Grail. That’s what brands want. They want a loyal client base that will reorder product from them, that are excited about new product being announced, that follow newsletters and don’t mark themas spam in their inbox. And ultimately how you do that is that you build this… 

 

I mean, why do people like Costco so much? Right. I keep going back to that mindset of like, there is such a brand loyalty to Costco. I think it’s just really interesting to see that the Kirkland Signature, which is their signature kind of house brand be applied to everything. Like it’s on golf clubs now, like they’re manufacturing golf clubs and people are buying them. It’s one of those things where it’s like, how did they build a discount box store, big box store, build such a strong loyal client base?

 

I think returns is such a huge piece of it that those clients have this feeling that no matter what Costco is going to have my back and they’re going to let me return this and I’m going to stay loyal and I’m going to buy something else that’s there. And I think they’ve done a really good job making that return process really easy. Granted, I think when you make that return process easy, you’ve got to have strong technology to manage it.

 

I think specific to what you’re doing in the marketplace makes total sense. I also think that from when you make it easier, that fraudulent abuse rate goes up, which means that you’ve got to be looking at your data to make sure that you’re keeping in an alignment. But I think brands, this is everything. The 3PLs on the other hand, are kind of like this operating on behalf of the brand, but not client facing.

 

And that’s a whole other world. Can you talk a little bit about the value that 3PLs would get in kind of returning, owning this return process a little bit stronger?

 

Kyle Bertin (29:38.03)

Yeah, so this is, it surprises a lot of people that we talk to. This is actually our main customer base.We enable the brands. I talked to a really awesome brand last night about something that they’re running into and then looking to work with us on. And I’m really excited to work with that brand. But in general, we serve 3PLs. And I think the way that I kind of simplify this is if you run a 3PL,

 

Well, first off, a lot of people think running a 3PL is easy. It is not to do it well. It’s a simple business, but it’s really difficult. So, to break down this business, what are you doing? You’re really running a business where it’s a function, your cost inputs are people and real estate. And of course, capital equipment and whatever, but it’s really people and real estate.

 

And then your revenue function is how many things can I store and touch and ship? And so the more units that go through that facility with more velocity, the more times I touch something, the more times I ship something out, the more money that I make. And if I can do that with less labor and less real estate, all the better. And there’s been a ton of focus on outbound logistics to optimize that forward motion,

 

That return processes is so archaic and inefficient in most of these warehouses. And that historically hasn’t been a problem. But the thing that’s really changed in the last few years is, number one, there’s just huge increase in return volume. So you said $1 .8 trillion at the start of the show for global retail. In the US, just to give you a sense of scale, e -commerce returns are now about $250 billion a year. That is 8x’d in the last five years.

 

Caleb Nelson (31:32.715)

Wow, that’s crazy.

 

Kyle Bertin (31:32.846)

So all of this returns volume is coming into these warehouses for these operators who historically haven’t had the tools to deal with them. Now that’s really difficult because first off, if you’re a 3PL and you want to win the fulfillment business and the transportation business for a high growth e -commerce brand, you can’t just say, “I’m not going to take your returns.” You can, but it’s going to lower the probability that you win that deal. And so 3PLs are out there trying to compete for the same client base with largely a commoditized offering. And if you don’t have a good returns capability, increasingly we’ve seen that brands will look elsewhere for somebody who will take that on because they don’t want to split inventory. They don’t want to have a bad return experience. So number one, I think it’s a revenue opportunity for 3PLs to have great returns technology and processes because the average 3PL does not.

 

And so you are going to win more RFPs, you’re going to put more volume to the facility, you’re going to work with better, higher quality, larger volume brands if you can do this. And that is played out in our customer base right now, is we’re helping 3PLs win more volume from better, more credible brands because they can deal with the returns using tools like Two Boxes. The second is really on the cost side. So that’s the revenue side. 

 

Second is on the cost side. And it’s really about how do I improve units per hour per employee in the return section. 3PLs when we first meet them are usually averaging somewhere in the range of like 15 to 20, maybe 25 units per hour through the return section per employee. Meaning like, hey, Caleb, if you got really good at this, you could do a return like every about three minutes or so if you’re doing it like the old school way.

 

What we see is that we’re actually enabling our customers to increase that by 50% or more, where they’re able to cut the time and the labor that it takes to do this. And because returns are usually priced on a per unit basis, they actually can pull a lot of margin out of the return process. And really importantly, they can make those employees happier. 

 

If you go do a facility tour at a large fulfillment center, usually it goes like this. You go walk around and all the people in the fulfillment side are using handhelds and they’ve got really cool tech and there might be some robots running around. And then you’ll eventually turn the corner and it’s always in the corner and you’ll find the sad section and it’s the return section where people are doing stuff by hand and they’re using spreadsheets and there’s paper instruction manuals and everybody in there.

 

It’s probably one of the worst jobs in the facility. And now with Two Boxes, we’re enabling our 3PLs to have a great technology driven process. And the end users that use our software, right, the warehouse associates, they rate our product super highly. We had a 92 NPS score last quarter from our warehouse associates. And that makes it a better experience for them, right? And at the end of the day, I’m a big believer that, you know, technology enables, but people run supply chains.

 

And so if you have great people in your warehouse who are excited and happy and using good tools, the service is just going to be better. That’s one of the things I tell brands all the time. If you go or looking for a new 3PL, insist on a facility tour and just get a feel like, are the people there happy? Like, is the facility clean? Like, are they excited to be working there? Because if the answer to that is no, you shouldn’t work with that 3PL. And that’s where we’re starting to really, I think, drive more efficiency in the warehouse because we’re giving people the right tools.

 

And then, last but not least, we’re actually enabling 3PLs to identify opportunities to expand revenue and service for the merchants that they serve. So I’ll give you an example. We have a 3PL customer right now where they serve a brand that has a highly seasonal product. It’s swimwear. So they have a huge volume increase over the summer months. And they noticed that the number one reason that items were not being returned to stock was because of like,

slight stains usually from like deodorant when people tried on this swimwear and sent them back. And it was to the tune of like a couple hundred thousand dollars of inventory a month that was going into the recycle bin because it had slight defects with it. So 3PL using two boxes data said, hey, for an extra X dollars per unit, we can try to spot clean all these and get them into a condition that they can be resold as new and we can re tag them and et cetera. And it’s a win -win.

 

The 3PL makes more money, earns a little bit more margin. The brand gets more inventory out of the trash can, so to speak, to be returned to stocks, they don’t have to buy more inventory. So it’s these types of things that I think we’re bringing to the 3PL. It’s more revenue, it’s lower cost, it’s happier employees, and it’s identifying opportunities to better serve your merchant customers so that they’re loyal to you and that they’re going to stay in that facility for not two years, three years, but seven years, 10 years. They’re never going to try to go look for another partner.

 

Caleb Nelson (36:40.939)

Yeah, I think that’s really a great call out, especially around a better employee experience. I mean, how much did we see that labor constraints were the number one driver for FedEx, UPS, 3PL warehouses themselves in 2021, 2022? And I think ultimately, the better of an experience you can have for your employees, the happier they’re going to be and the better of a better job that they’re going to actually perform on behalf of you if you’re a brand outsourcing your services to a 3PL.

 

So that makes all the sense in the world and I think with returns being at an all -time growth clip that it’s out right now, what’s your final advice for shippers going into 2024 when it comes to returns?

 

Kyle Bertin (37:34.83)

Yeah, I think for shippers, it’s, you know, you got to start somewhere, right? So it doesn’t mean that you have to run right into using, you know, Two Boxes. We obviously think that everybody should, but we’re biased. But, you know, I think you have to, you have to start by understanding, you know, what is the state of your returns? And it can be hard to do this, but like, if you are a shipper and you don’t have a PNL on your returns, you need to start doing that.

 

You need to understand how much of your inventory is being returned, how much of it is being restocked, how much of it is being resold, what are the costs in this whole chain and how can you optimize them? Because there’s plenty of opportunities out there. So I think that’s number one. Number two, I think it’s really understanding how to serve your customers better and better. So like you talked about, Caleb, that’s really the name of the game for everybody, including Two Boxes, is making a better end consumer experience. And so, you know, there’s lots of great data out there about what consumers are looking for nowadays. Narvar, for example, puts out an excellent report every year called like the state of returns, I think they call it. I would, if you’re a shipper, I think you should be reading that every year, right? What are consumers demanding? What does the data show? What do they want? All right, so how can you make this a great consumer experience for returns, you know, section? 

 

And then, you know, last but not least, I think it’s, you know, if you’re running your own fulfillment center, I think it’s go and do a tour. Right? Like if you’re a large brand and you’re running your own fulfillment, go and do a tour in your fulfillment center and like talk to your employees and see what’s happening and learn about how you can operationalize returns better. And if you’re not running your own fulfillment center, go talk to your 3PL, the number of brands that I talked to where they literally don’t know like what’s happening to their returns, how their three PL is dealing with it, how they can help. I think it shocks me. And there’s this very healthy tension always between brands and 3PLs. There’s this joke in the industry, like, I used to ask a brand about their 3PL and you’re never gonna get more than a “meh” out of them. And I think it’s always viewed as the 3PLs fault, but in many cases, it’s a two-way street. And so I think if you’re struggling with returns as a brand, and you’re using a 3PL, you gotta talk to them. You gotta understand what are they doing, how are they doing it, is there anything you’re doing that’s making their life harder, and how can you collaborate together to make this process better? Because if you do that, you’re gonna get more inventory back to stock, you’re gonna lower your cost, you’re gonna improve that customer experience. And so I think that’s my last call out there.

 

Caleb Nelson (40:18.635)

Yeah, I think that’s great call outs. You’ve dropped so many solid, really important pieces of information for brands and 3PLs to take and digest from a return standpoint. This episode’s been extremely valuable. So thank you so much for joining. Let us know or let our listeners know where they can be able to get in touch with you, the best ways to reach out to you, how can they interact with you.

 

Kyle Bertin (40:47.79)

Yeah, thanks Caleb. I really appreciate that. So, you know, a ways you can reach us. So our website is just www.twoboxes.com. That’s T -W -O, boxes .com. You can check us out on LinkedIn, just under Two Boxes. Our team is trying to be pretty active on there. We meet a lot of customers on there. So, you know, you can direct message me and then, you know, I’m probably getting towards the end of being comfortable with this, but…

 

You know, I get a lot of emails. My email is just [email protected]. You can reach me there if you want to email me as a brand or a 3PL. We’d love to meet you and see if we can help you. And I think, you know, for for most listeners that are shippers or 3PLs, we probably can help you. So shoot me a note. And then if you’re by the time this airs, it probably won’t be, you know, relevant, but we’ll be at.

 

uh… MODEX and Shop Talk and we will also probably be at PARCEL Forum later this year. And we’re also going to be doing a Two Boxes road show that i’m pretty excited about which basically means that we’re going to go to about a half dozen fulfillment markets uh… all over the all over North America this year to meet some of our current customers and partners in person and meet some prospective partners so if you’re a 3PL and you want us to come and check out your facility and show off the products and just give you some free advice. Let us know where you’re located and we’ll add you to the Two Boxes Roadshow Tour this year.

 

Caleb Nelson (42:20.347)

Yeah, I love that idea. I think that roadshow is really cool. Well, I wish you the best of luck. Looking forward to running into you at MODEX and a couple of other shows you mentioned that Sifted will be at as well. Kyle, this has been really helpful. Thank you so much for joining us.

 

Kyle Bertin (42:36.174)

Thanks Caleb, I really appreciate it.

 

Caleb Nelson (43:56.171)

Well, thanks again for listening. Sifted is going to be at the Home Delivery World in June. If you’re going to be there, reach out to me at [email protected]. We’d love to set up some time to chat. As for LeaderShipping, you can find more episodes on Spotify, Apple podcasts and other podcast platforms. Be sure to subscribe so you never miss an episode. And I say this every time, but really, please leave us a rating or a review. If you like what you’ve heard, it really helps us kind of determine next steps with this. And the next topics we want to be able to focus on too. You can also watch these episodes on Sifted’s YouTube channel and check out sifted .com for more information about us along with some other great resources we have like our blogs, monthly newsletters and some helpful guides and research and more. As always, thanks so much for listening. Catch you in the next one.

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