Driving Innovation in Returns Management: David Sobie with Happy Returns

Summary

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Podcast Summary: Supply Chain Now

Episode: Driving Innovation in Returns Management — David Sobie with Happy Returns

Date: June 10, 2026
Host: Scott Lewton
Guest: David Sobie, Co-Founder & CEO of Happy Returns

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Episode Overview

This episode dives into the evolving world of returns management with industry pioneer David Sobie of Happy Returns. The conversation centers around consumer preferences in returns, innovations that make the process seamless, the challenge of returns fraud, and the dramatic expansion of Happy Returns’ network. David shares insights from his career journey, implications of fraud data, and actionable advice for supply chain leaders, all while offering a glimpse into the future of reverse logistics.

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Key Discussion Points and Insights

David’s Professional Journey & Roots of Happy Returns

• Career Foundations at FreeMarkets:
  • Culture and Leadership:
    • Early experiences at B2B reverse auction pioneer FreeMarkets shaped David’s focus on performance culture, talent retention, and entrepreneurship.
      • “...when you find talent, it is your job to keep them engaged...give them opportunities to grow. Sometimes, you know, responsibility may be beyond what...their experience might suggest.” (07:11, David)
  • Dotcom Era Lessons:
    • David participated in FreeMarkets’ IPO, rode through the bubble burst, and learned about resilience and camaraderie in high-growth, high-pressure environments.
• Hautelook to Nordstrom to Happy Returns:
  • At flash sale retailer Hautelook, David saw firsthand that shoppers far preferred to return online purchases in person rather than by mail.
    • “…over 70% of Hautelook's returns were going back into Nordstrom Rack stores...It was great for Hautelook, it was solving a real pain point for shoppers, but it also was driving an incredible amount of foot traffic into Nordstrom Rack stores.” (00:00, David)
  • Experience became the seed for Happy Returns: providing "Buy Online, Return In Store" (BORIS) for digitally native brands with no physical footprint.

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Consumer Preferences & Returns Experience

• Why In-Person Returns Win:
  • Shoppers overwhelmingly dislike printing labels, boxing items, or waiting long periods for refunds.
    • “We joke in our office that tape is a four letter word...And most importantly...please don't make me wait to get my money back.” (12:46, David)
  • In-person, box-free, and label-free drop-offs through Happy Returns locations satisfy the need for speed, ease, and instant refunds.
• Impact on Loyalty:
  • A frictionless return experience drives loyalty and higher customer lifetime value.
    • "The best customers...buy the most from you, but they also return the most. Right. It's kind of like, you know, shots on goal in a hockey game.” (12:46, David)
  • Negative return experiences lead to lost customers; over 80% won’t return after a bad return, per Happy Returns/NRF research.

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Key Trends in Returns and Reverse Logistics (2026)

• Speed as a Competitive Advantage:
  • Delayed returns mean delayed resale and dead stock. Fast, aggregated returns maximize merchant revenue.
    • “Returns are essentially inventory that can’t be resold until it’s back on the shelf...all that inventory is basically dead stock until you can get it back.” (20:00, David)
• Changing Economics: The End of Free Returns?
  • Over 70% of retailers now charge some return fees — as a lever for changing consumer behavior and offsetting return costs.
    • Merchants use fees (“carrot and stick”) — waiving for exchanges or offering store credit bonuses — to encourage desired actions.
• Return Fraud: Magnitude & Countermeasures:
  • Scale of the Problem:
    • 9% of returns are estimated as fraudulent. Nearly half of all surveyed consumers admit to “bending the truth,” including 66% of Gen Z. (24:01, David)
      • "45% of the shoppers we surveyed admitted to bending the truth...for Gen Z, that statistic climbed to 66%" (24:01, David)
  • Methods of Fraud:
    • Includes empty box scams, fake tracking IDs, exploiting refund-upon-scan policies, and organized groups sharing exploit techniques online.
      • “You can find places where people are...sharing what they have found...to defraud the retailers. Like the moment a weakness is identified, you know, it’s out there in social media.” (24:01, David)
  • Merchant Response:
    • Increased use of risk scores and AI to identify suspicious returns, combined with in-person drop-off verification, image matching, and—when needed—delayed refunds for high-risk transactions.

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Happy Returns: Rapid Expansion & Innovation

• Network Growth Announcement:
  • Expansion from 8,000 to 10,000 drop-off locations via UPS partnerships (including The UPS Store, Staples, Ulta Beauty, and local shipping businesses). (32:02, David)
  • “More locations means that we are closer to where shoppers are...expanding the percentage of shoppers that live near a Happy Returns location...” (32:02, David)
  • Growth driven by new, large customers: Gap, Shein, Temu, Skims, Spanx, etc.
• Operational Scale and Efficiency:
  • Unit economics benefit from aggregating returns before shipment, reducing costs and supporting further expansion.

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Advice for Supply Chain & Retail Leaders

• Top Three Takeaways:
  1. Give Consumers What They Want:
     • Prioritize free, easy, and fast returns where possible. Box-free, label-free drop-offs are a win.
     • “...give the people what they want...returns that, as I said, are free, fast and easy.” (36:05, David)
  2. Proactively Manage Fraud Risk:
     • Use technology: risk scoring, image comparison, delayed refunds on suspicious items, and careful verification at drop-off.
  3. Thoughtfully Apply Return Fees:
     • Avoid blanket fees; tailor policies to customer value, transaction history, or fraud risk. Keep friction minimal for best customers.
     • “...if you have the data...identifying which customers...and then trying to be thoughtful about what behavior you're trying to, you know, incent or prevent...” (36:05, David)

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The Future of Returns: Personalization, Data, and International Growth

• Personalization Extends to Returns:
  • Return options, refund speed, or scrutiny will be customized per customer or transaction—much like credit scores—based on data models.
    • “...the same kind of personalization that we experience on the buying side, I think we're gonna see on...the return side.” (30:15, David)
    • "Maybe it doesn’t make sense to have the same return process for every one of your shoppers." (39:30, David)
• Global Growth:
  • Rising volumes from Chinese e-commerce giants and their desire for modern, seamless return solutions present new opportunities for innovation.

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Notable Quotes & Memorable Moments

• “Tape is a four-letter word.” (12:46, David) – On consumer frustration with at-home, box-and-ship returns.
• “The best customers...buy the most and return the most.” (12:46, David)
• “45%...admitted to bending the truth...for Gen Z...66%.” (24:01, David) – On widespread 'friendly fraud.’
• “You probably couldn’t design a more inefficient and costly process than single item shipments back through the mail.” (12:46, David)
• “Returns are essentially inventory that can’t be resold until it’s back on the shelf.” (20:00, David)
• “You find weaknesses, and the next moment, it’s on Reddit and Discord.” (24:01, David) – Highlighting the rapid spread of exploit knowledge.

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Important Timestamps

• [00:00] — David on shopper preference for in-person returns; the Hautelook/Nordstrom Rack “aha moment.”
• [05:05] — Formative lessons from FreeMarkets and early career.
• [08:15] — Birth of Happy Returns: from Hautelook to enabling online-to-physical returns for brands without stores.
• [12:46] — Why shoppers prefer in-person returns; summary of consumer pain points.
• [20:00] — Key trends: speed, rise of return fees, and their strategic use.
• [24:01] — The staggering scale of returns fraud, consumer honesty stats, and fraud tactics.
• [32:02] — Happy Returns’ expansion to 10,000 drop-off locations.
• [36:05] — Three-part advice for retail/supply chain leaders.
• [39:30] — Looking forward: personalized, data-driven returns experiences.

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Conclusion

David Sobie and Scott Lewton’s conversation underscores how pivotal returns management is to customer loyalty, operational efficiency, and profitability in e-commerce. Innovations like scale-driven aggregation, risk-based personalization, and a growing national network show how technology and strategy are transforming a long-ignored supply chain function. For supply chain professionals, David’s key advice is to blend customer-centricity with intelligent risk management, and to let data drive smarter returns policies for the next era of retail.

Resource Highlight:

• The 2025 Retail Returns Landscape — Joint report from Happy Returns & National Retail Federation, packed with data referenced in the episode.

Connect with Happy Returns:

• Website: happyreturns.com
• LinkedIn: Happy Returns
• David Sobie on LinkedIn (with personalized note!)

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Transcript

[David Sobey]

If you give online shoppers the choice, they overwhelmingly prefer to return products in person. Six months after launching the Return to Rack program, over 70% of Hautelook's returns were going back into Nordstrom Rack stores. It was great for Hautelook, it was solving a real pain point for shoppers, but it also was driving an incredible amount of foot traffic into Nordstrom Rack stores.

[Supply Chain Now Announcer]

Welcome to Supply Chain now the number one voice of supply chain. Join us as we share critical news, key insights and real supply chain leadership from across the globe, one conversation at a time.

[Scott Lewton]

Hey, good morning, good afternoon, good evening wherever you may be. Scott Lewton with you here on Supply Chain now. Welcome to today's show folks. On today's show we're delighted to have a pioneer in supply chain join us here today. Especially from a returns management and reverse logistics standpoint. We're going to be taking a look at how one innovative company that provides end to end return solutions for online retailers and shoppers. Well, how it continues to expand across the US we're going to touch on a variety of things and one of my favorite topics including some of the key trends impacting the reverse and return space. We're going to talk about the rise of returns fraud and what the future of returns may look like. All this and much, much more. So folks stick around for a great conversation that's going to offer up tons of actionable insights by the truckload. So I want to welcome in our terrific guest joining us here today. David Sobey has quite a successful track record especially in online retail. He's built businesses and enterprise software, logistics, supply chain and e commerce at top tier tech companies like ebay and free markets. And in 2015 David Co founded an intriguing business called Happy Returns which looked to transform the customer experience especially from a return standpoint. Happy Returns has enjoyed a successful growth journey and it eventually went would be acquired by PayPal and now UPS. David continues to lead the company as CEO while also serving as an advisor and board member to other intriguing organizations. Please join me in welcoming David Sobey, co founder and CEO of Happy Returns. David, how you doing today?

[David Sobey]

I'm well, thank you Scott.

[Scott Lewton]

It is wonderful to finally meet you. You know, you may not know it but I've been tracking you and the Happy Returns team for quite some time and it's great to finally meet you here today.

[David Sobey]

Good to meet you sir.

[Scott Lewton]

So let me ask you this before we get into all things reverse and returns and and find out some really cool expansion plans you are in the middle of at Happy Returns. I want to start with a little fun warm up question and you know we like to talk food, music and sports and kids. But one thing that kind of came to the forefront in the pre show is you just are coming off a great experience in Vegas where you took in a pretty long time popular band at the Sphere. Tell us about it.

[David Sobey]

Yeah, so a couple weekends back I was lucky enough to catch fish. They did a nine show residence at the Sphere over three weekends. I caught the, the final weekend so show seven, eight and nine and man, if you haven't been to the Sphere yet, I, I could not recommend it more. It is a very, very unique music experience. The, just the, the power of the visuals in that arena make it unlike anything that, that I've seen. And yeah, I was, I had a great, great time, you know with a lot of good friends but the sound quality is incredible. The visual quality is amazing. Really, really kind of a different animal than maybe what you're used to a live, live concert being so highly, highly recommend it.

[Scott Lewton]

Dave. That's what I've heard. I've heard a lot and as we were talking kind of pre show I, I've, I've seen and read various takes on the business model behind the Sphere. But you know, I've heard so many great attendee experiences so I'm have taken the show really quick. One last thing before we get into your, your professional journey. You're a big time Lakers fan. I think LA is home while you're on the road right now. Big time Lakers fan and of course spending time with your kids I know is a top your list. What's one of your favorite things to do with your kids there, David?

[David Sobey]

Oh, that's a great question. So we live in la, we live near the water. So yeah, the beach is probably, you know, one consistent experience that you know, it's hard to. Everyone enjoys the beach, right? It's hard to, to have a bad time when you're at the beach.

[Scott Lewton]

I'm with you. Especially with kids, man. Especially with kids. Well, it's great to get to know you. We got a lot to get to here today. Appreciate you joining us here on Supply Chain now and I want to, I want to first offer some context to folks right and level set a bit on your professional background. You've had quite a journey and you still got lots more chapters ago. It's amazing what you're doing right now at Happy Returns, but long before all the modern glory I'll call it and long before your current role at Happy Returns can you share a couple of, you know, leadership roles that really shaped your worldview?

[David Sobey]

David? Yeah, I think the, the first one and, and I'm going to date myself with this. But in the late 90s, sort of first.com boom, I worked for a company called Free Markets, which pioneered the use of kind of B2B reverse auctions. It was a company based in Pittsburgh, which is what made it sort of a unique experience. But I would say a lot of my career was shaped by the experience I had there. Being part of a growth company, that was really where I got a taste of what an entrepreneurial experience could be like. I think much of my career has been sort of chasing that, trying to recreate that. Learned a ton about culture and the importance of culture in building a company. A lot of what we kind of have as a performance culture at Happy Returns is probably modeled on that experience at Free Markets. And it was kind of the full, you know, the full Monty, right? We were a dot com darling. We went public in December 1999, kind of at the very peak of the, of the market. And so got to sort of ride it up and then also ride it back down when the NASDAQ bubble burst in March of 2000. And we were all still locked up at the IPO. But awesome experience. Actually last fall we had our 30 year reunion for Free Markets, which was pretty amazing to kind of reconnect with all the folks that I went through that experience with.

[Scott Lewton]

Really quick. On the culture side, I loved your. I mean, number one, it sounds like an exciting chapter, you know, highs and then lows. But, but sounds like the camaraderie of. At Free Returns, you experience. I mean, how many companies do you hear getting together for unions like you are doing 30 year reunion. That's awesome. And the cultural takeaways, I love hearing how those lessons you learned, those critical lessons you learned and what's a special time for industry, you know, are still baked into and lingering between your ears and baked into the team and the organization and the culture at Happy Returns years and years later. This sounds like you had some powerful eureka moments.

[David Sobey]

Yeah, for sure. I think as a young person, an impressionable person, you know, at a time when I was excited to work hard and, you know, to be part of a culture where that was really rewarded. It was very much a performance culture. You know, we were all there to. Yeah, yes. We were there to have fun, but we were there to work hard and we were there to accomplish something. And, and I think it, you know, very much modeled kind of Our, our feeling at, at, at Happier Turns where, you know, when you find talent, it is your job to keep them engaged. It is your job to keep those people, to give them opportunities to grow. Sometimes, you know, responsibility may be beyond what, you know, their age or their, their experience might suggest. And so I think that, that, you know, having those opportunities presented to me, you know, is very much kind of the way that we've modeled the career paths of some of the folks at Happier Turns.

[Scott Lewton]

David, love it. I know there's plenty of other roles and positions that you held that I'm sure shaped how you view industry and view the world and view business, but is there another one that comes to mind that you could share with us?

[David Sobey]

Yeah, I think it's kind of where the happy return story starts and that was that. I was an SVP of market, a flash sale retailer in Los Angeles called Hautelook. And I don't know if you all remember Flash sale as a format, but these were kind of limited time sales of designer apparel and footwear, highly discounted prices. Right. So you joined for free by providing an email and then each day there was an announcement of what brands were going to be on sale. And it was kind of inventory was there until it was gone. So there was a strong call to action. And it was a sort of pioneer in online off price, which at the time, so this is kind of 2009, 2010, you know, was, was still new, you know, most, most online retail was full price and this was discount. And if you know the ho story, we, you know, we ended up getting acquired by Nordstrom. Nordstrom had Nordstrom stores and Nordstrom.com for full line retail. They had Nordstrom Rack for physical discount retail, but they didn't have a Nordstromrack.com and so Hautelook became the nucleus of what eventually became Nordstromrack.com, which today is a multibillion dollar business line for Nordstrom. And the happy return story actually starts there. That's where I met the co founder, Mark Geller. I was leading marketing, Mark was leading the mobile development team. And one of the projects that we worked on after the acquisition was letting hautelook shoppers buy online. Because we were an online only business so you could buy from Hautelook and return products to Nordstrom Rack stores. And the insights that we gained working on that program were really the instrumental insights that led to founding the company. In really simple terms, if you give online shoppers the choice, print a label, box it up, mail it back, or bring the item in for an in store return experience. They overwhelmingly prefer to return products in person. And Mark and I were shocked that six months after launching the Return to Rack program, over 70% of Hautelook's returns were going back into Nordstrom Rack stores. Even though most of our our customers had no idea that we were part of Nordstrom. And you know, what was really remarkable was that it was great for hautelook, right? You know, it was a differentiator compared to all the other flash sales sites out there. It was solving a real pain point for shoppers. But it also was driving an incredible amount of foot traffic into Nordstrom Rack stores. Right? And you can imagine if you're a Nordstrom Rack sales associate, you know, and I come in returning a pair of jeans. Natural question, hey, David, why are you returning those jeans? You know, they didn't fit. Okay, great. Let's get your haute look return taken care of and then maybe we can walk over to the denim section and put you in a pair of jeans that do fit, right? So it was a phenomenal customer acquisition play for Nordstrom Rack. And when Mark and I started Happy Returns, we thought, gosh, you know, we can recreate this case study that we just had a front row seat to. We probably know more about this problem than anyone in the world at this point because, you know, we had spent some time working on it. And so we went out to pitch the initial idea for Happy Returns. It was we enable buy online return to store for retailers without stores. And this was kind of the beginning of the direct to consumer wave of e commerce. We knew there were going to be a lot more haute look type businesses out there, digitally native, without stores, and that we could provide that buy Online return in store experience for all of those businesses.

[Scott Lewton]

You're already kind of sharing some of the what prompts you to start Happy Returns and some of your why there. But really quick, you're describing, you know, we all love our acronyms in this space. And Boris, you know, buy online return in store. And if I'm not mistaken, really quick, before I double down on how you started Happy Returns, y' all had a great report come out with our friends at the National Retail Federation. And I was looking through that earlier. It's called folks go. You ought to go check it out. Chock full of good stuff. The 2025 retail returns landscape. I need another cup of coffee. And one of the things that the data shares is that, Boris, Buy online return in store is still a fast growing preferred option for a lot of Consumers out there, David, you're still seeing that, right?

[David Sobey]

Yeah. And so in our case, it's returning, buying online, returning in a store. But it's a store where the experience is part of happy returns, right? So it's a third party network of locations. And yeah, that, what that report basically kind of highlights is that this has become the preferred way that online shoppers want to return products. Right. Don't make me print a label, right? No, no one has a printer anymore, especially those of us that work from home. I mean, my printer never has toner in it, right. Don't make me print a label. Please don't make me box something up. You know, we joke in our office that tape is a four letter word. And most importantly, if you talk to online shoppers, they say, please don't make me wait to get my money back. Right? And returns by mail. You know, the process typically was, hey, print a label, box it up, drop it off, and then go check your credit card statement for the next two to three weeks hoping to see that refund issued. You know, we started Happy Returns with this idea of we can eliminate all of that return friction for shoppers. And by doing so, we can actually reward the merchants that make it easy, right? And it's a little bit of a counterintuitive point in our business. We used to hear things from retailers like, gosh, do I really want to make it easy for my shoppers to return? And yet, if you think about the places that you shop, and I'm speaking for myself here, but it's the merchants that remove friction that make it easy for me to buy, make it easy for me to return. That's where loyalty is really built. And I'd say that we were ahead of the curve in understanding just how important that touch point is in the journey with a shopper, right? It's kind of, you know, hey, they bought something, it didn't work out for whatever the reason, that's really an important opportunity to either build loyalty or to lose a customer. Right. And that report that you highlight, you know, talks about, I think something like, you know, 80 plus percent of people that have a bad return experience will never shop with that merchant again. Right. You know, on the flip side, if you can turn it into, to something happy, right, Something delightful, that's really where you, you earn loyalty. And the reality is, you know, and this is again, kind of a counterintuitive point, but, you know, the best customers of any brand that sells online, you know, they buy the most from you, but they also Return the most. Right. You know, it's kind of like, you know, shots on goal in a hockey game. Right? It's, it's, you know, they have the most opportunity for. For something to not work out. They're more likely, if they're loyal to you, to try. You know, let's say you, you know, you expand your assortment into something new, they're more likely to try it. And the reality of buying, you know, we. We work mostly in soft goods, you know, things like apparel, footwear, accessories. You know, the reality is those are. Those are highly penetrated categories online, but they have really endemic return challenges, especially when you're trying something on, you know, without. Without, or. I'm sorry, when you're buying something and can't yet try it on. Right. And so something like footwear, a lot of times people will buy multiple sizes, you know, or. Or in apparel sometimes, you know, multiple colors. Maybe I'm buying it from my phone. I can't really see, you know, is it. Is it black? Is it. Is it charcoal gray? Is it heather gray? You know, maybe I'll buy all three, try them on it at home and figure out which one I like the most. And so, yeah, it's. It's really, you know, I would say that we started the company really thinking about solving the consumer pain point. You know, what we found is that, man, returns are challenging for merchants as well. They're expensive. You know, you probably couldn't design a more inefficient and costly process than single item shipments back through the mail. We quickly realized that, you know, happy returns could not only solve pain for shoppers, but could also solve a lot of pain for merchants through, you know, some of. Some of the things that we do to aggregate items before we send them back.

[Scott Lewton]

David, fascinating stuff. It really is. And, you know, I think in the bigger sense, I think we can have our cake and eat it, too. I've seen a lot of leading retailers, number one on one side, do a great job making it frictionless for customers to return stuff, but then on the other side, doing their best to educate, inform, and help the customer make a more. Make a better buying decision. So hopefully we see less of the bracketing which you're referencing that, you know, is still prevalent across industry.

[David Sobey]

Yeah.

[Scott Lewton]

And I'll tell you what, if we can make the customer happy and delighted when they return stuff, but also make them happy and delighted that more of their orders hit the mark, I think we will be making progress.

[David Sobey]

Agreed.

[Scott Lewton]

So, David, so we're going. And we're going to talk about the Happy Returns expansion because y' all have entered a, a really exciting new chapter. So we're going to come back to that. When you think of the why for starting Happy Returns, you really laid out a compelling part of your story there. You mentioned counterintuitive a couple times, but man, looking back, it makes so much sense. David. I wish I thought of it 20, 30 years ago, my friend.

[David Sobey]

Thanks. Yeah, it's pretty neat that a lot of the initial insights that Merck and I had, you know, are still relevant today, I'd say, as our journey. You know, I mean, this is our 11th year in business. You know, as you mentioned in your introduction, you know, we had, we had time as an independent company I know were then acquired by PayPal, so went through that experience one time and then had the opportunity to sell the company a second time and found, I think, the right long term home at ups. A lot of the core ideas have stayed the same, but where I think there's excitement is really that the scale has just grown. And logistics is a business that gets far more interesting with scale. And I would say that the problems change as well. Right. If there's something that's slightly inefficient, you know, it's one thing if you're doing it a couple of times a month, but when you start doing it millions of times a month, millions of times a week, even small inefficiencies can cause major issues. It's sort of the reinvention of our network, the reinvention of our return hubs, the reinvention of the journey through our reverse logistics network with scale. That's really where I find joy today is just being able to operate at sort of enterprise scale. And being part of UPS is, I mean, it's just the resources we have, the expertise we have, it's just awesome.

[Scott Lewton]

Well, I'll tell you and more on that current chapter in just a moment. You know, you describe a lot of what I think of the reverse logistics and returns management space. You know, we've been covering this space for about eight, nine years. And a big tip of the hat to my dear friend Tony Shirota, who's helped with our continued learning and professional development here. You know, when as a practitioner I was in manufacturing space more than anything else in all of my, my supply chain experience. So I've learned a lot in the last eight or nine years and, you know, over that time period, it's been really cool to see more technology and startups and investment, you know, enter this space. But when you think of a short list of key trends that are impacting returns here in 2026, now in your 11th year, leading happy Returns, but also you've been in, you've been in this space longer than just those 11 years. What are a couple key trends that, that are atop your list right now that, that supply chain leaders need to be aware of?

[David Sobey]

Yeah, I'd say that that speed, you know, speed and return is probably really top of mind. Why is that? I think that, you know, returns are essentially inventory that, you know, can't be resold until it's back on the shelf. And I think that merchants are understanding, especially in some of the categories we work in, where it's not uncommon to see return rates 30, 40% in apparel and footwear, all that inventory is basically dead stock until you can get it back on the shelf. And so I'd say that a real focus on speed is one trend. And then I think people have written about this quite a bit, this sort of, you know, question of are we the end of the era of free returns? You know, many, many more merchants, I think in our latest survey it was like north of 70% now have some form of fees associated with returns. You know, why is that? It's trying to introduce a bit of friction, maybe upstream, you know, as you talked about in the, you know, asking shoppers to think about, you know, what they're buying and know that, hey, there's a real cost here for the merchant if you, if you end up returning it. And I think what the really savvy merchants are doing or sort of imposing return fees that drive the behavior they want. Right. And the example I always use here is they may say, hey, if you want to return this to your original payment method, I'm going to charge a restocking fee. But if you're willing to exchange that item, I'll waive that. Right. And so maybe instead of buying two sizes, you know, you buy the one that you think is going to work well, and we'll make it easy for you if you want to exchange. You know, how do we do that? Well, we partner with the company like Happy Returns to make it easy to drop the item off. And when your item is dropped off, that's what will trigger the exchange back. We'll waive the fees to try to incent the right type of behavior. Right. Or we see sometimes people saying, you know, I'll charge you a fee if you want your money back, but if you're willing to take it in the form of Store credit. I might actually even add to your, your total. Right. So if that, you know, this, the $100, you know, shirt that you bought, I'll give you $110 if you take it in store credit rather than, you know, taking, you know, a fee from you if you want it back to the original payment method. Right. And so what is that? That's a merchant thoughtfully using kind of carrot and stick in their return policy in order to try to drive the behavior that they want from their shoppers.

[Scott Lewton]

I like it. I really like it. I'll tell you, it's a fascinating time we talk regularly of as a consumer. You know, if you look at the last 20 years, look at, heck, look at the last 10 years, the options and the variety and I mean, it's just an amazing time. It's just amazing time. And then to get what you need, you mentioned speed at the top of your list. One of the trends to get it going and coming, you know. Yeah. Same day, next day. It's just an amazing time. And the engine behind it all is equally as amazing. But I want to talk about one trend in particular and get your take on one rising trend. You know, as I mentioned pre show, I was in a room in Dallas, Texas last year, a couple of years ago, maybe last year, I think it was, anyway, it had biggest collection of retail leaders and retail returns leaders in this room that I've never been around.

[David Sobey]

Right.

[Scott Lewton]

And we both know that the returns, when you think of returns as a functional space, that's one area the industry's got to get better at. You know, creating more reverse logistics, VPs and directors. We still have a lot of room to go there, but the brain trust in this room was, it was staggering. And I spent about two days with this group. And the number one thing that all these retails, these retail leaders and returns leaders spoke about, the number one topic far and away was returns fraud.

[David Sobey]

Right.

[Scott Lewton]

Because it's a challenge that continues and it's not just a friendly, the friendly fraud as some folks refer to it. There's more organized crime getting into the fraud game. So share a few of your observations, if you would, around the continued rise of returns fraud.

[David Sobey]

Yeah, So I agree with you. It is definitely probably the number one concern of the merchants that we work with. You mentioned the study that we published with the nrf. You know, a couple of stats from that, that study I think are just, just staggering. So, so one was just the, the share of, of returns that merchants believe are fraudulent in our reporting. And this is through kind of merchant surveys. 9%, right. Almost 1 in 10 returns are what merchants are estimating. If you think about that, that's a lot of potential loss that the merchant has to eat. We also survey shoppers in that study. One of the really kind of mind boggling stats was 45% of the shoppers that we surveyed admitted to bending the truth sometimes when it came to returns. So almost half overall. And then if you actually took a look at it by age bracket, this trend was even more pronounced in younger shoppers. Right. So Gen Z, that statistic climbed to 66% of Gen Z respondents admitted to bending the rules. And when you think about Gen Z, I mean, these are folks that have grown up with online shopping. I'm more of a Gen Xer, but for the Gen Z. And so to them, you know, fraud is just, you know, you know, it's just part of shopping. Right. And you mentioned the rise of organized crime rings. I mean, this is something that whether it's true criminals or just, you know, folks that are looking to take advantage of a weakness, what's remarkable to us is how if you look for it, you know, in Reddit threads, in discord threads, you know, you can find places where people are gathering online, where they're sharing what they have found, you know, weaknesses in some retailers return processes and opportunities to defraud the retailers. Like the moment a weakness is identified, you know, it's out there in social media, it ends up getting, you know, utilized. And it's kind of a little bit of a game of whack a mole for the merchants. And I would say, you know, one of the real vulnerabilities is, you know, it's not just returns by mail, it's returns by mail coupled with refund at the time of carrier scan or refund at the time that a package arrives back to the warehouse, rather than actually inspecting the item at the time of drop off or inspecting the item at the warehouse. Right. And why is that, you know, sort of this weak point? Well, it's because what ends up happening is people will return empty boxes, right? Or something called fake tracking ID fraud, where, you know, someone will print the return label that the merchant gives them. They might alter the address, slap that label on an empty envelope and mail it off. And then as it's going through the carrier's network, it's getting scanned. And so at that point, then they'll start calling customer service saying, well, look, I can see that it's been received. You know, I can see that it's Made its way back, but I haven't gotten my refund yet. You know, you need to issue me my refund. And what does the customer service person do? They assume that it's lost somewhere at the warehouse. So, you know, I think that the idea that merchants are facing more fraud just because of consumer behavior as well as the sort of organized fraud is very real. Right. And I know your next question is going to be, you know, what do you do about it? You know, it's really this sort of balance of, you know, a great customer experience. You know, what do shoppers want? They want returns that are, that are free, that are easy and that are fast. You know, what do merchants want? They need confidence in order to issue those refunds. So in our case, this means dropping items off in person, where a store associate can actually verify that the item that's being returned is actually the item that was purchased. We do that through things like barcode scans or asking the store associate to pick an image of the item out from a series of images, a little bit like a captcha. And why are we doing that? Well, we're doing it so that the merchant can, with confidence, know it's okay to issue David his refund. Right. And combine that with now advancements in risk profiling and risk scoring each return transaction. This is something where, you know, we used to have 100% of items that got dropped off at happier terms would get an instant refund. Now what we're doing is we're actually looking at, you know, the, the basically coming up with a fraud score or a risk score for each one of those returns transactions and deciding that the high risk items, we'll wait until we can get that item back in one of our facilities and actually take a look at it and confirm both with the human eye and using artificial intelligence. You know, is this actually the item that was purchased? Right. Taking, taking pictures, comparing those pictures to images on the merchant's website and then using AI to really like study and confirm that. Yes. You know, the item that David is returning is actually the, you know, the item that he purchased from this specific brand.

[Scott Lewton]

When we think of the organized cromwell component of overall returns fraud, just like they're using the latest and greatest technology. I see a lot of the countermeasures and you're describing a few retailers will continue to invest. There's really cool technology that's proliferating out now that's going to be able to. X ray is probably not the right word, but between using AI and other technology, really scan even the packages that look like they're in their original, you know, manufacturing, you know, plastic wrap and all that stuff. You know, the associates are in place, are in a spot where they can really, you know, make certain determinations. We. We got to put them in better positions, too. We got to educate them and equip them with a. With innovative technology to handle the. Right. Those conversations at the point of returns. So it really is. It's a fascinating, you know, like, it. Like in every sector, every industry, you know, you got bad actors. This is a fascinating particular battle to continue to watch. And, you know, all the organized crime aside, David, just going back to the. The survey data points you shared on what we'll call. I hate saying friendly fraud, but, you know, I'm not sure a better name to put that. You know, consumers bending the truth. We gotta. We gotta figure out a. A good countermeasure there too.

[David Sobey]

I think what we're gonna see is. We're gonna see. And maybe I'm jumping ahead to kind of, you know, crystal ball stuff, but the same kind of personalization that we experience on the buying side, I think we're gonna see on. On the return side. Right. And it could be based on, you know, your. Your past behavior as a shopper, you know, could be based on value of the transaction. It could be based on characteristics of the actual return. Right. We look at this in our risk scoring things like, you know, when did you start the return relative to when you received the item? Right, right. And all of those various data points about our history will go into, you know, the methods that are offered to you, to how much scrutiny is given to the item as it comes back and ultimately when your refund is issued.

[Scott Lewton]

And, you know, we are jumping ahead the crystal ball, but just like we all have a credit score, you know, we'll probably more and more all have a. A consumer score, a return score. As you know, we look to. To enable consumers to take full advantage of their behaviors. You know, whether in terms of some of the deals you mentioned much earlier in your response or to mitigate some of the behaviors, retailers don't want to see as much. So it's. It's again, fascinating space and. And I'm gonna keep my finger on the polls and watch what y' all do at Happy Returns as we continue to navigate, you and all the retailers navigate this. This really interesting time. Speaking of interesting times, Happy Returns, you got big news. In fact, this is what hit my radar. I think I was reading news of Yalls expansion in the Wall Street Journal and I'd love for you to tell us kind of in a nutshell about this big exciting expansion that's taking place. David?

[David Sobey]

Yeah, so the news that you read about in the Journal was that we are expanding the drop off network from 8,000 locations to 10,000 locations. And so today 8,000 locations are composed of the UPS store which has about 5,400 locations, Staples which has about 1,000 and Ulta Beauty which has I think 1400 drop off points. Those are all part of our network today. The expansion announcement was really about adding 2,000 additional locations. And we do this through our partnership with ups. UPS has what are called ASOS and that acronym stands for Authorized Shipping Outlets. So these are companies like Package Hub or Annex brands, Postal Annex that are know, shipping local. Typically these are local businesses that offer shipping services. And so we're adding about 2,000 of those to our network. Why is this important? Well, it's important because, you know, more locations means that we are closer to where shoppers are. It means that we're expanding the percentage of shoppers that live near a Happy Returns location. We know that, you know, what do shoppers want? I mentioned that they want returns that are kind of free, fast and easy. This kind of speaks to the easy part, right? More locations means more convenience for those shoppers. And we're excited because it's, it's, you know, in the logistics business you're sort of balancing ultimately, you know, part of how we get economies of scale is by aggregating items in the same box for shipment. And so, you know, full boxes is important for our unit economics. Right. You know, we want to, instead of shipping, you know, 20 boxes with one item in it, we want to ship one box with 20 items in it in order to take advantage of sort of the shipping cost curve. And so expanding, you know, we wouldn't be able to add, you know, 20% more locations if we didn't have significant return volumes. And so it was sort of, this is a natural next step in our growth path. And that's really, I would say, you know, the success of the last couple years being part of UPS where we've added, you know, some real household names that use happyreturn service. So companies like the Gap, companies like Shein, Temu, Skims, Spanx, these are all Happy Returns customers now. And those are businesses that are large and scaled and as a result have large return volumes. And so being able to add 2,000 new locations to the network is part and parcel of the growth that we've seen in Return volumes by adding new customers.

[Scott Lewton]

Exciting times. And that list of companies, you just rattle off all those new customers. My daughter would think you're the coolest person in the world, David. My oldest daughter, I'm still learning, I'm still learning the cool places to shop for her. All right, well, congratulations to you and the Happy Returns team. This is a really cool chapter and in a fascinating space. And. And we'll have to have you back and talk more trends far beyond fraud. Some more, some more fun to talk about trends taking place in this special part of the global retail world. All right, I got a couple more questions for you here, and one thing I want to particularly ask you. You know, we have supply chain leaders tuned in. They're listening to us, right? In the traditional podcast sense, or they're watching us on YouTube perhaps. There's still a lot when we think about some of the most mature aspects of global supply chain in terms of performance or functional areas. You know, the return science and reverse logistics science is newer and it hasn't gotten the attention that so much of the forward side of our global industry has gotten. So naturally we got, we got lots of, lots of improvement opportunities. So for the supply chain leaders out there to listen to this conversation right now that are grappling and struggling with reverse logistics and returns management, you have a couple of pieces of advice for them, David.

[David Sobey]

So I'd say that, yeah, the first piece is to kind of give the people what they want. You know, I think what shoppers want are returns that, as I said, are free, fast and easy, you know, depending on the category you're in. You know, the idea of box free returns to a third party network make a lot of sense. You know, there's sort of two big ecosystems with happier terms being one of them where that service is available. The second is really this need to sort of protect yourself from fraud. And that can take many different forms. You know, we talked about things like risk scoring, about, you know, kind of secondary audits. You know, there's a service that we introduced last fall called Return Vision, you know, that sort of combines the idea of risk scoring and secondary auditing of, you know, of items that are coming back, delaying refunds in some instance to ensure that, you know, fraud can be identified at the source. And then the last kind of big trend is really the thoughtful application of return fees. So I talked about how many more merchants again in our survey, I think the numbers north of 70% now have some form of return fee. But for those that are considering return fees, I would say one size doesn't fit all necessarily. And I think you want to be really thoughtful about how you apply fees. And you know, if you have the data and the modeling to do it, you know, identifying which customers or which transactions have fees and then trying to be thoughtful about what behavior you're trying to, you know, incent or prevent, you know, by the application or waiving of those fees, I think is really important. Right? You know, your best customers, you know, don't introduce friction there, you know, but those where you're, you're most exposed or perhaps where there's been fraud in the past, or those specific customers that have had instances of fraud, that's, I think, where you want to introduce friction. And so I think it's really trying to balance that, giving shoppers exactly what they want with not exposing your business to material amounts of fraud.

[Scott Lewton]

I think those are three great tips and I love the last one about being judicious before you rush to, you know, that across the board policy. Really we have tremendous opportunities, especially in the, in the modern age where technology and, and treasure troves of data and analytics are at our fingertips. Let's use them.

[David Sobey]

Right.

[Scott Lewton]

And let's, let's build a smarter, nuanced strategy. And then going back to your first one, David, I know you're a music fan, obviously a big fish fan. Are you a fan of 10,000 Maniacs? You remember Natalie Mercury?

[David Sobey]

Yeah, sure.

[Scott Lewton]

Okay.

[David Sobey]

Yeah.

[Scott Lewton]

So your first tip reminded me of one of my favorite songs that they released when I was in high school called Give them what they Want was a refrain. I can't remember the name of the title. But that's your tip. Yes, the first tip, Give them what they want. We're in a great position here in the golden age of supply chain tech returns, tech, reverse tech, to really give the consumers what they want to delight and, you know, blow their socks off while protecting the business and being smart and managing a smart and profitable business. Okay, so let's do this. You've already touched on the crystal ball.

[David Sobey]

Right.

[Scott Lewton]

But I'm going to double dip here because when you think of the future of returns and what they may that, that that might look like, what else do you see? I mean, you've been in the space longer than a lot of folks and with a lot more success than a lot of folks. What else do you see the next couple years?

[David Sobey]

Yeah, one area that we're pretty excited about. I think there's two areas. One is sort of, if you kind of look at where growth is a Lot of growth is coming from some of the Chinese e commerce players. We're excited about that space. We're excited about partnering at those companies. There's a desire to truly have a modern return experience. And so I think that's a growth area. Another is this sort of personalization aspect that I mentioned. For years, personalization in e commerce was about recommendations, you know, you know, you bought peanut butter, so now I'm gonna, I'm recommend jelly to you. But I think that personalization is coming to post purchase as well. Right. And that could be things like, you know, what shipment method or speed of shipment. It could be things like, you know, as we talked about what types of return methods are available to you, it could be when refunds are issued for you. And again, I think that's going to be really dependent on you as a consumer, you know, and the data that's being collected on your behavior. You know, you talked about the idea of almost like a credit score. I think that's going to be, you know, increasingly, you know, a good model to think about in terms of the post purchase experience that shoppers have. And I think that's exciting because I think it's appropriate and I think it makes sense from a merchant standpoint. Maybe it doesn't make sense to have the same return process for every one of your shoppers.

[Scott Lewton]

Yeah, I agree with you. And if we can encourage the right behaviors, you know, I think that provides a lot more options and benefits for the, the 80 out there, you know, so it'll be fascinating to watch. I think your crystal ball seems to be pretty finely tuned and we'll have to have you back. And we'll examine the next couple years. We'll examine the growth chapter the Happy Returns is in, and we'll keep our finger on the pulse of this fascinating aspect of global business and global supply chain. All right, so David, final question for you. The billion dollar question. If folks want to connect with you or if they want to learn more, do business with Happy Returns, you name it. What's the easiest way for them to learn more?

[David Sobey]

Yeah, so I would say, you know, to learn more is probably happyreturns.com you know, or to follow happy returns on LinkedIn. You know, we use that a lot to publish updates on the business. If you spend time there, you can download the research report that you and I have talked quite a bit about. There's all kinds of case studies about the way that we work with different merchants that can be really useful, you know, especially if, you know, if it's a brand that's trying to understand kind of how to apply solutions like ours. Me personally, LinkedIn is a great way. I do read and respond to LinkedIn requests. My one ask would just be explain to me why you're reaching out. Don't make me click through to your profile and try to figure out what I'm supposed to do with it. You know, I'm much more likely to respond if someone says, hey, you know, I'd like to learn more about something or you know, hey, I listened to you on, on a podcast and I found it really, you know, really exciting. That kind of personalization goes a long way in kind of cutting through the clutter.

[Scott Lewton]

I like it. I like it. Be targeted, be judicious. And hey, say you heard David Sobey right here on Supply Chain now that might get his attention.

[David Sobey]

That's right.

[Scott Lewton]

We shall see. But also he mentioned happy returns on LinkedIn. That's where I found some really cool stuff, including, I think that's how I I backtrack to this great piece of research that I want to mention. Again, it is a joint a project between the National Retail Federation and Happy Returns. I think it came out last year, but it's chock full of stuff that's relevant to where we are today. And it's the 2025 retail returns landscape. So folks, check it out. Let us know what you think. What a great conversation. David Sobey, co founder, CEO at HappyReturns. David, thank you so much for being here today.

[David Sobey]

Thank you, Scott. This was fun. I enjoyed it.

[Scott Lewton]

Well, next time we'll double dip on the music side. We'll explore some other ways that we other music analogies we can find in returns in Global Supply Chain. But hey, kidding aside, hey, I appreciate the innovation that you and your team continue to bring to Global Supply Chain. We look forward to having you back again soon, David.

[David Sobey]

Thank you, Scott.

[Scott Lewton]

All right, so to our Supply chain now, Global Fam. Hope you enjoyed this conversation as much as I have. I nerded out a bit. I find this space fascinating. I really do. And maybe one of the reasons why is because we're all consumers, right? And a lot of the behaviors that Dave and I both spoke about, you know, they, they resonate, right? Because again, we all, these are things we all do. And so watching the innovation in space is really fascinating. But beyond all of that, you got homework and know the homework, right? It's the same homework every episode. You got to take one thing of all the good stuff that David shared here today. Take one thing. Do something with it, Share it with your team, share it with a colleague. Deeds, not words. That's how we're going to continue to transform global supply chain and not leave anyone behind. With all that said, Scott Luton, challenge each of our listeners out there. Do good, give forward, be the change that's needed. And we'll see you next time right back here on Suppache Now. Thanks everybody.

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