Why UPS wants to ship your returns more than your online orders
UPS isn’t as interested in the e-commerce deliveries that used to be its bread and butter.
“There’s just not a lot of margin in delivering T-shirts to houses,” Chief Financial Officer Brian Dykes told The Atlanta Journal-Constitution last fall.
That is part of what drove a major rollback in its relationship with its largest customer, Amazon, last year.
But returning those T-shirts back to the retailer? That’s a different story.
The company’s return business with Amazon is growing, Dykes said. UPS has also pulled back from shipping outbound items for Chinese e-commerce heavyweights Temu and Shein, but “where we do business with them is on returns,” he said.
The Sandy Springs-based global logistics giant sees immense opportunity in “reverse logistics.”
On Tuesday it announced a further expansion of the network of its subsidiary Happy Returns.
“We are simplifying the end-to-end e-commerce journey, and when it comes to returns or exchanges, UPS and Happy Returns have a network that is unmatched,” UPS Chief Commercial and Strategy Officer Matt Guffey said in a statement.
The startup, which UPS acquired in 2023 from PayPal, is one of several UPS reverse logistics solutions where merchants pay UPS to handle their returns, alongside its self-serve kiosks and more traditional prepackaged and labeled versions.
“We’re focused on returns because it is so complicated,” Joe McKinnie, Happy Returns’ senior vice president of sales and business development, said in an interview.
“Being able to bolt all those things together in a way that feels seamless for a merchant or for a customer, provides a ton of value.” That means big potential for revenue and profitability for UPS.
No box, no problem
Happy Returns’ model requires no shipping box or label. A customer can just bring the item and a QR code to a UPS store or “Return Bar” partner location.
After an employee vets and accepts the item, the store consolidates all Happy Returns into boxes bound for the subsidiary’s own fulfillment centers. There, items are re-sorted and repackaged in bulk back to retailers.
And while UPS has invested broadly in automating and consolidating its logistics network behind the scenes, cutting 20,000 jobs and closing 10% of its buildings last year, the business case for returns is very reliant on the in-person handoff.
That includes the company’s more than 5,000 UPS Stores and other “Return Bar” partner retailers including Staples and Ulta Beauty.
This week UPS added the service to more of its independent packing and shipping retailers, bringing Happy Returns to 10,000 drop-off locations nationwide.
The company says 79% of the U.S. population now lives within 5 miles of a “Return Bar,” up slightly from 76% before the expansion.
It’s another example of how Happy Returns has been able to leverage UPS’ network, which targets one part of what makes returns so complicated, McKinnie explains.
There’s a need to craft a convenient experience that covers the nation. Then there’s executing the complicated supply chain of getting disparate items back to retailers efficiently, which UPS is uniquely able to offer, he said.
And finally, there is the major issue of fraud, McKinnie said. “There’s always some scammer trying to find some new vulnerability and exploit it.”
Figuring out how to effectively stop it, he said, “is the future of return services.”
Why in-person matters
In-person interactions are important on several levels, he explained.
From a customer experience perspective, “There’s clear research that in-person returns is the preferred method,” he said. Eighty-five percent of Happy Returns consumers choose the “Return Bar” in-person option rather than printing a label at home.
Maybe they don’t have a printer or a box or tape, he said. Even if they do have all that, then they have to drop the package off somewhere anyway. “Well, if I’m going to bring it here, I might as well just skip all those other steps and walk in with the QR code on my phone,” he said.
There’s a layer of trust the in-person hand-off brings, said Shawn Reese, manager of a UPS Store in Marietta.
“There’s a lot of people that want to see someone face to face and have that interaction with them and know that, OK, it’s in good hands,” he said. The majority of his customer interactions are over returns, Reese added.
But the in-person interaction is also the first line of defense in combating the major problem of return fraud, McKinnie said.
A National Retail Federation/Happy Returns report estimated about 9% of all returns are fraudulent.
And Happy Returns’ system, McKinnie said, includes several layers of deterrence. First, there is that UPS Store or partner location employee who scans and verifies the item’s authenticity.
Then there is a back-office fraud risk scoring system monitoring transactions and customer behavior, he said, like if something is returned in a location far from where it was delivered.
If either the item seems fraudulent or the customer is flagged, the system will “suppress” the automatic refund and inform the customers via email their refund is delayed.
Crucially, Reese said, employees are trained to assume good intent and accept items regardless, so as not to risk a tense interaction in the store or the “safety of the franchisee.”
Once the item gets to Happy Returns’ fulfillment center, it is directed to an audit bin and opened back up.
There, Happy Returns can leverage its artificial intelligence-powered “Return Vision” technology to compare detailed images of the item with the merchant’s online catalog.
“It either passes the audit and we say, ‘Hey, despite the suspicion, there was nothing there. This is a legit return.’ At that point, we release the refund out to the customer,” McKinnie said.
If not, Happy Returns sends the item to the merchant to decide how to proceed.
In a world where customers expect easy e-commerce returns, the solution to preventing fraud, McKinnie said, can’t be “punishing all of your customers.”
“Fraud is a real problem, but it’s perpetrated by a very small number of customers. When you go out and you make things really difficult, people are saying I’ll shop somewhere else.”
McKinnie said there’s much opportunity ahead for Happy Returns and UPS, including an expansion to other more complex categories like consumer electronics or beauty products.
Then there’s the possibility of international expansion of a currently U.S.-only network.
“What can we do in the rest of North America?” McKinnie said. “What can we do in Europe, Asia?”
About the Author
As a business reporter, Emma Hurt leads coverage of the Atlanta airport, Delta Air Lines, UPS, Norfolk Southern and other travel and logistics companies. Prior to the Atlanta Journal-Constitution she worked as an editor and Atlanta reporter for Axios, a politics reporter for WABE News and a business reporter for the Arkansas Democrat-Gazette.
