Memo: The Returns Coup

The eCommerce industry is a dance between partners, economic conditions, and balance sheets. Affirm, Shopify, Deliverr, Flexport, Returnly, and Loop have all had their moments on the dance floor this year – each striving to perfect their routine while keeping pace with the rhythm of market dynamics, consumer behavior, and technological progress. But of them all, Shopify is the key benefactor; Loop is the latest beneficiary. Effectively acquiring the chief competitor while bolstering its relationships with two of the most important software platforms in all of commerce.

It’s all one big give and take. Shopify’s divestment of its Deliverr investment may see Flexport benefit over the longterm. Shopify and Flexport deepened their alliance as a result.

Shopify and Flexport are deepening their alliance as Shopify seeks to compete with e-commerce rivals such as Amazon and Walmart. The companies announced a partnership in February that gives Shopify merchants access to Flexport’s freight services, including booking international shipments from suppliers to their warehouses. Flexport also counts Shopify as an investor.

Then, last week, it was publicly announced that Loop did a deal of a lifetime. In what was essentially an acquisition of Returnly, CEO Jon Poma structured a deal that may send a large number of Returnly’s clients from Affirm to Loop in exchange for Loop stock to Affirm (though this agreement is a partnership and not a bonafide acquisition). In line with what was explained above, Affirm counts Shopify as an investor. Loop also counts Shopify as an investor.

Amidst this symphony, the returns segment of the industry has often been offbeat, posing significant challenges to both consumers and retailers. The ‘return to sender’ card was held by as much as 16.5% of overall sales in the past year, tallying up to an imposing $800 billion-plus in return value according to Wayne Pommen, Affirm’s Chief Financial Officer. But as any seasoned dancer would know, to evolve, sometimes, you need to learn new steps. Reflecting this ethos, Affirm and Loop Returns have choreographed a strategic partnership that will nearly double Loop’s business and remove a competitor, all while improving Shopify’s position in a two-fold manner.

Returnly’s clients partnering with the long-time Shopify loyal, Loop Returns, means more ecosystem lock-in and a surer bet from its equity position from its 2021 investment into Loop.

While Shopify was investing in Loop’s Series B, Affirm and Returnly partnered for a tango of their own. Acquiring Returnly was Affirm’s response to the incessant growth of returns and an attempt to streamline the industry. The data reflected in this essay’s title card can begin to explain why Affirm was motivated to enter the returns business. Returns revenues boomed in 2021.

Returnly, with its self-service online returns experience, catered to more than 8 million shoppers, swaying to the beat of returns and exchanges. Yet, two years later, influenced by the increasing importance of core profitability, Affirm decided to change both its dance and its partner. Divesting Returnly, Affirm moved in tune with Shopify’s previous divestment from its logistics business, underlining a trend of letting specialized partners lead in non-core operations.

Ironically, Loop Returns, a company now nurtured with investments from both Affirm and Shopify, emerged as the beneficiary of these strategic divestments. Loop, with its commitment to making returns a more harmonious dance for businesses and customers, struck the right chord. It provided the perfect rhythm for more than 2,200 merchants, enabling them to reduce refunds and retain more revenue according to Pommen (not to be confused with Poma). Affirm’s new dance partner will prove to be a harmonious fit. The timing of the transition couldn’t have been better.

Loop’s CEO, Jonathan Poma, described the partnership as a grand assembly of industry leaders, sharing the common goal of orchestrating better returns for businesses and customers. Poma said merchants moving from Returnly to Loop “will be joining brands such as Princess Polly, Allbirds and Tecovas who continue to trust Loop to manage their returns. Joining Loop’s platform will positively impact your business by delivering meaningful cost savings — from reducing refunds to optimizing your reverse logistics processes.”

With Affirm passing the baton of Returnly to Loop, it enables the latter to optimize the returns experience for an additional 1,500-plus merchants. For these merchants, joining Loop’s platform holds the promise of transforming their returns process from a frenzied jig into a well-orchestrated waltz, with cost savings, enhanced operational efficiency, and a seamless customer experience.

As PYMNTS recently reported, Affirm’s acquisition of Returnly for $300 million in cash and equity occurred at a time when the eCommerce dance floor was more crowded than ever; the pandemic, hungry investors, and a quickening pace of adoption all influenced the all-cash deal and 10x return to Returnly’s venture capitalists. But as the music (ahem, economy) slowed, Affirm decided to refocus on its core operations, a move that echoes the strategic decisions of other key players in the eCommerce sector. Affirm’s CFO said it best:

This partnership with Loop and the divestiture of the Returnly business will allow Affirm to take an even deeper focus on driving strong growth and profitability in our core business, serving our merchant and platform partners with world-class payments and technology solutions, accelerating our direct-to-consumer offerings, and building on our deep capabilities in underwriting and decisioning.

Translation: Affirm needs to capture as much of this growth as possible to remain a viable BNPL business:

As this grand dance progresses, the trend is evident. eCommerce industrialists are recognizing the value of forming equity-based, strategic partnerships to address non-core operations, allowing them to concentrate on perfecting their signature moves. The strategic decisions of Affirm and Shopify to divest from non-core operations and engage Loop Returns in managing the returns process mark a significant shift in the eCommerce industry. In many ways, Loop executed the perfect coup.

By setting new trends and orchestrating new, long-term partnerships, these companies are poised to redefine the eCommerce landscape and its financing mechanisms. As Shopify, Affirm, and Loop continues to improvise and innovate, the dance of eCommerce is set to reflect improved efficiency, enhanced customer satisfaction, and increased profitability. It’s a dance where everyone is learning, adapting, and, above all, evolving.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

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