Rent the Runway (RTR) and WeWork recently announced a partnership that would allow RTR subscribers to return their products in select WeWork locations. These locations to drop off products will save RTR Unlimited members—allowed to rent four items at a time for $159 a month—a lot of time. Users can scan in their return, get their credit back immediately and drop their existing item in a returns box, all in one place. Since WeWork has over 300 locations in almost 100 cities, the potential reach of the partnership for RTR is large, even though it will only be available at 15 locations to start.

The changing role of returns in ecommerce

Returns have always been a gift and a curse for ecommerce. To onlookers, they signify the shortcomings of the online shopping experience for consumers: the inability to try things on, to see items as they are in real life. Ecommerce can also encourage indecision among shoppers, offering free shipping and returns. All of these effects also contribute to significant costs for the brand, where return rates (and the shipping and distribution costs that accompany them) can range from under 10% of all orders in the best case scenario, to 40-50% on the high end. This means that the cost of every order will be recorded, but only the revenue of every other order will be counted, an expensive endeavor—not to mention the environmental cost of added cardboard, plastic, gas and jet fuel to power this supply chain.

Amazon is the king of returns, contributing to consumer expectations and driving others across the industry to bolster their return policies. It has saddled these costs from day one, but recently the company has been doubling down on more convenient and cheaper methods. Amazon Lockers and other return methods strategically positioned in Amazon’s growing retail footprint (especially Whole Foods) are making returns easier for customers and cheaper for the company to process.

Happy Returns was created in 2015 to provide brands the returns infrastructure that Amazon exercises. The company works with digital brands to create a centralized system of locations, often in malls and department stores, where shoppers can drop off returns of multiple items from different brands. Happy Returns then aggregates the items and ships them back to their respective homes. While its service can be a valuable, brands should not seek to become top customers as this would mean they necessitate a large number of returns—often emblematic of poor-fitting products or a disconnect between what’s seen online versus what shows up in person.   

For most brands, the end goal is to get a customer to keep the product, which is effectively the service. But returns can also be a sign of loyalty, signaling that customers are shopping frequently and trying a lot of different options. So what if they only keep 30% of what they buy? That might be the cost of doing business today with such competition and endless choice.

This is especially the case for RTR, where the end goal is to get someone to keep giving specific products back, but keep using the service. With this in mind, the customers who return the most items and see the most value from RTR, are the company’s power users—in effect, their returns are a net positive for the brand.  

Retail partnerships versus owned retail  

The other interesting lesson from the WeWork-RTR partnership is the role of returns in the offline world. While brands have made it relatively easy for customers to return online orders, it still takes effort to generate or locate a label, box it up, find the nearest shipping center, and then wait a week or more to get the money back on their account. This process is much simpler and faster in a retail store, assuming a shopper can get to one.

During the end of 2013 and beginning of 2014, RTR started testing its offline footprint with shop-in-shops at Henri Bendel’s New York stores and The Cosmopolitan in Las Vegas. The company then opened its first store in the fall of 2014 in New York, and has since established five stores in total where shoppers can both make returns and check out new products. According to RTR, 60% of its in-store “transactions”—which are really just when a shopper does something in the store, not necessarily a sale—are spurred by returns, while 40% of visits lead to checking out or buying new products. Again, while this might be bad for a traditional product company—a store leading to more returns than sales—the high velocity of returns for RTR is a positive trait. The company also says that having in-store returns boxes helps increase foot traffic, getting customers into the store and then encouraging them to stick around to check out new products.

RTR’s partnership with WeWork is a relatively asset-light way for the rental company to expand its footprint without signing long-term leases and plowing hundreds of thousands of dollars into building out each brick-and-mortar store. Instead, it has highlighted a specific part of the customer journey that offline can really improve and proceeded accordingly, tripling the number of currently available locations for returns to 15 from the company’s current batch of five stores—a number that is likely increase more substantially in the near future with more WeWork locations and possibly more owned stores.

The main question is whether unbundling the returns piece specifically is enough to keep the flywheel going, instead of combining the buying and returning processes in the same location, as it exists in RTR’s stores. Regardless, the RTR-WeWork deal illustrates that returns aren’t inherently good or bad—it just depends what purpose they serve.