A
Flood of Returns Is Killing Online Retailers. These 3 Startups Are Turning the
Crisis Into a Goldmine
Circularity gives new meaning to the
old adage, ‘what comes around goes around.’
EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @TULLMAN
May 19, 2026
I wrote recently
about Beni, which is becoming a major player in the used clothing resale space.
Beni offers a clever Chrome pop-up that appears as shoppers look at specific
apparel items online and which offers them the opportunity to instantly locate
and purchase secondhand versions of the same or similar items at dramatically
discounted prices. The retail resale marketplace is growing at a sizable
multiple of traditional retail and it’s likely to continue to expand,
especially as Trump’s economy continues to tank. There’s no longer any stigma
attached to smart and economical shopping, especially as fast fashion items
become instantly disposable. In addition, “used” has become “vintage” and
wearing vintage clothing has become a “statement” that’s cool with the kids,
politically correct, and good for the environment.
I noted in my earlier
Inc. column that many of the major retail brands were also adding sections to
their own websites—assisted by Beni and others—which offer discounts on their
own products. While some of the merchandise offered on these sites are returned
goods, and some are described as gently used, it’s clear that another
significant portion of the goods were unsold and excess inventory that the
brand manufacturers try to keep out of the discount apparel channels and
downstream stores. I thought at the time that these were mainly items that
hadn’t appealed to consumers for various style and color reasons. But I missed
two other major drivers of returns and accelerants in consumer behaviors which
I expect will only increase substantially in the future and become even more
challenging problems for online retailers. As always, problems for traditional
players turn into opportunities and openings for aggressive young
entrepreneurs.
The first major change
is the absolute flood of returns that every online retailer is facing because
ordering three or four different sizes or colors of the same item – with every
intention of returning (at the vendor’s cost) most of the items – has become
standard shopping behavior which the retailers need to account for and treat as
a cost element in every sale transaction. While it’s easy to sample alternative
sizes and colors in a store, it’s become an expensive cost to the sellers both
in terms of the return shipping costs and, equally important but often
overlooked, the cost of inspecting, repackaging, and restocking rejected
apparel. Related to this basic activity is the more shameless “wardrobing” that
goes on every day now where young consumers order the apparel, wear it once or
twice, and then return the items for a full refund.
Many retailers are
concluding that restocking customer returns at this scale is no longer economic
and, in the absence of better alternatives, they’re sending more and more
apparel to the landfills. Combined, these return costs can often approach the
vendor’s entire margin—especially when we’re talking about low cost, fast
fashion items. As the speed and ease of returns increases (Uber and Door Dash
are both looking at extending their services into the return space), the volume
of returns and excess inventory piling up in sellers’ warehouses is going to
explode. And, to be honest, if we want an inclusive and diverse economy where
everyone has access and participates, we have to value more than just pure
economic efficiency.
One clever win-win
answer is a service developed by LiquiDonate which automatically routes unsellable
returns or excess inventory to local nonprofits, charities and schools and
thereby reduces supply chain costs, eliminates waste, and helps to protect
brands’ reputations. The firm has already processed over 16 million items and
they’ve built sufficient infrastructure capacity to handle up to 1 million
items a month. LiquiDonate also offers services to manufacturers and retailers
looking to unload excess material directly from their warehouses. And while the
savings are mainly operational, the company does provide documentation to
vendors who are interested in taking tax advantage of any available charitable
donations.
The second behavioral
change relates to the very expensive problem which young growing families have
in cost-effectively keeping their kids in clothes that fit and getting rid of
the outgrown stuff. The latest estimate is that it’s going to cost more than
$300,000 to raise a child and smart families are exploring every available
alternative to save money. Handing down the used goods to younger siblings
(often a tough sell) or giving the older apparel and other equipment to friends
and family with right-sized kids have been the traditional path along with an
occasional trip to the nearby Goodwill store to dump a load of random used
items.
Here again, a
Chicago-based operation, Kidsy, has come up with a better idea to lean into
sustainability, save growing young families plenty of cash, and abandon the
lazy throw-away culture to which we’ve all fallen victim. Kidsy’s recommerce
platforms work with major players like Amazon, Target, LEGO and Macy’s to
resell excess, open-box and customer-returned baby and kids’ products at
heavily reduced prices ranging upwards of 50 percent off the original retail
pricing. Conscientious parents can shop for the best brands and premium
products, save significant amounts, and also help sustainably support the whole
new circularity movement. Price is what you pay, but value is what you get. In
the last 2+ years, Kidsy has helped to divert almost 2 million pounds of
products bound for landfills and helped more than 150,000 families nationwide
to take care of their kids and stay within their budgets. Circularity gives new
meaning to the old “what comes around goes around” adage, it helps our planet
and improves what we’ll be leaving behind for our kids, and, best of all, all
the participants come out ahead.
Customers consume
products and they consume company values as well. All of these actions are
components that constitute a brand’s promise. A good brand is a promise kept.
This is a very powerful way for major brands to present and provide their
products to millions of customers who might not be able to initially afford
them at retail, but who may very well ultimately become lifelong customers
after being exposed to these items in a “feel good” fashion.
