Increasing LTV By Shifting Refunds To Exchanges

Retain profile

Jonathan Poma (00:00):

My name is Jonathan Poma. I've got Dave Wardell with me. We're here to share a little bit with you about what Chubbies and loop have done. From, from the beginning to, to drive customer lifetime value, and really retain customers through returns. I'll give a brief backstory and then we'll get into the origin story of Chubbies and loop. My name's Jonathan I'm a cofounder and CEO at loop, loops are returns and exchanges platform for Shopify merchants. We work with some, some great brands on the platform, prior to loop or on the way there, started an eCommerce agency, a Shopify agency called in 2014, at the very, very beginning of Shopify plus. And Chubby's was my first client. And so we've been together since the very beginning and had been working with Dave that long. So you introduce yourself.

Dave Wardell (01:36):

Yeah, I appreciate it. Well first are those new solo lashes behind you? Those wovens? I think I have those exact shoes. Love that. Yeah, my name's Dave Wardell, CFO for Toby's, been with Travis about seven years now. I started a couple of years in the family and have covered a number of different things for us over the years. Always fight as a battalion, but you know, Phil Stillman, I joined about a month after we moved to a three PL for the first time. , and it was a physical class, so counting something there, and it touched a bunch of areas of business sense that just took back over about a year ago for filming the logistics and my scope also includes net suite, internal operations and processes and systems and improvements awareness. I'm looking forward to chatting today. I think loop’s been something that's been near and dear to my heart for awhile. I'm happy to kind of talk through the words I'm not to John. You want to start or

Jonathan Poma (02:50):

Yeah, yeah, absolutely. I mean, I, you know, we're doing some hiring now and I was, I was talking to a, a candidate for a leadership position. They asked a little bit of this and I was like, man, I like remember exactly where I was in 2015 when Dave called, like from a train to talk about the challenges Chubbies was having with returns and what we did from, from there. So like, I mean, I remember like in the office, in our, in the like thousand square feet, we were in, in grand view, in Columbus, Ohio, like with the whiteboard behind me and our carpet and our drop ceilings and the fluorescent lighting and all this like super, super early stuff. But, with that, you know, yeah, maybe, maybe just turn it over to you to, to talk about the problem you guys were having. And, you know, I think the solution we, we stumbled into because it was such a real, a real problem for the Chubbies business and we've, we've, we're fortunate to solve it together in such a great way.

Dave Wardell (03:49):

Yeah, for sure. And, sorry about the echo off with, over, to headphones next time I take over, but, hopefully everyone can hear me well enough, at the moment. , I think, really, you know, it was a pretty simple first thought with just, there were really no solutions out there that were handling any type of automated returns. Even generating a label at the time was, was, was something that we were going to have to build custom. It appeared and so started doing some brainstorming. My brother actually was a customer service agent at the time, and I was just talking to him and looking over his shoulder and he was just sitting there processing manual stains on Shopify. Like, I mean, it was brutal, brutal work to be watching at hand and he was telling me that he was spending like two and a half, three days a week just doing math, just reprocessing with 100% discount code, exchanges.

And so that was kind of when we, we made a leap from like, Oh, let's just get a label that makes it easier for customers to shift back in a reason code. So we know a little bit better, why they're sending stuff back and getting that into, you know, a more of a database or a spreadsheet. That was when we made the leap to thinking about, okay, what could we do from an exchange front to make things a little bit more automated? And I think, that was really where, where, Palmer came in and, and is someone who, you know, I really respect from a, an eCommerce product background. I mean, just came to the table with some really cutting edge stuff around automating the exchange of side that, that I didn't even know. It was possible to be totally honest. I am not a technical person. And so it was, it was really helpful and that's, and that's really where a lot of brainstorming and Griffin came about to get to essentially what was kind of a, the loop version one, if you will. I'm gonna switch over to my audio problem if you want to.

Jonathan Poma (05:55):

Yeah, no, that's, that's, that's great. , yeah, David, like as soon as we got off the call, we started like looking into Shopify as APIs and what could we look up with an order and could we see inventory? And could we, you know, at the time, we wanted to build this sessionize experience where we could then go shop and, and we did all that. And, you know, to set the, you know, to set a frame of reference for everybody, this is like 2015. When most merchants are burying a PDF, you've got a download somewhere in the footer. And, you know, we'll talk a little bit more about what we've, what we've learned, but where, you know, returns were something that you want to do avoid. They were a cost center and you want to, you know, any commerce, the theory working in the time was let's make it hard for customers to return products because we don't want to lose that revenue.

And I think we all realized today that, you know, in apparel, you can see 20%, of your GMV, come back in returns. And, you know, at a first glance, that first-order consequence of a return or an exchange feels a harrowing and feels, feels terrifying. , but I think where we started was, you know, it's easy for brands and it's easy, honestly, for anybody to think of a, a return and a refund as the same, the same thing. What's fundamentally true is there's a big gap between those things and so what we started with, you know, with, with the Chubbies team was, you know, Hey, a customer is returning a product most of the time when they're returning a product, they're going to want to exchange that product for a different size. So let's make that really easy.

And then let's also make it really easy for them to look for a different product if we have the right brand and the wrong product. And then if, you know, if we have the right brand and the wrong product and the wrong time, maybe we can still offer them a gift card. , and then ultimately let's not make it hard to get a refund, but let's try to get the right product in the hands of the customer. And that was kind of the working premise that we started with. And, I kind of, I don't mean this with any hubris, but I think of like that first version of that product being really core to what loop is today and the value that loop still delivers today. And it almost the same way that like what Dropbox released whenever they released. It was so good.

And there've been so many competitors. And so many people have tried to do what Dropbox does, but Dropbox is still the standard for like distributed cloud file storage across teams, or individual computers and phones and tablets. , and the core value proposition of the product then in 2015 is still kind of where we're, where we're at now. , but we've learned a lot along the way.

Dave Wardell (8:34):

Yeah, for sure. I mean, back on just to, just to jump in there, hopefully, you guys can hear me well enough now. Sorry about that. But, ,, I think, you know, it, it proves itself right away in terms of just all of a sudden, you know, if I looked a year later, the company was much bigger and we were spending about five of the time of the original time on, you know, just some, one-off ones from like international customers or weird situations.

And it's kind of cool to see how the loop product has grown and developed over time. And that, a lot of, a lot of those edge cases that we originally were having to solve for have even been fixed now, and you know, where, where we used to have, , problems and around, people returning swim trunks, after wearing them, for example, which as you can imagine, that's kind of gross. We don't want those back. , and so, you know, having popups to warn people that, Hey, if you've worn this, this is not, going to be accepted as a return. So it kind of removes a lot of those matters. , and, and really the stuff that we're left with dealing with on the customer service side is more educated, really educated in nature, or questions around a specific product, for example.

So, I love how it's developed. It's kind of crazy to see where, you know, how it's continued to expand. And I think, , there's features now like, like allowing people to, you know, go out and actually shop the sites, that were not part of, you know, the original, original kind of view that, that have, I would say, like for us at least, you know, dramatically improved that, that ratio or relationship between exchanges and refunds.

Jonathan Poma (10:34):

Yeah, so I'll maybe make a one, one philosophy philosophical statement and then, and then dig into some numbers and, you know, want to make sure we save plenty of time for, for questions if anybody's got them. So please do be, be submitting them. But I think philosophically at the loop, you know, we wanna, we wanna take, what's it kind of high friction and high-risk experience, which is, a consumer has purchased a product from a brand that they potentially have only ever experienced online, and it hasn't met those expectations, and that's a really dangerous point for that customer, that relationship with that customer, if you treat them right in that moment, you're going to win their loyalty forever.

And we'll come back to what that actually looks like quantifiably, if you're wrong, you, you can kind of lose them forever. So we've really leaned into that friction and tried to make it as, as great an experience as we, as we possibly can, which is, which is the philosophy. , but when I, when I gave first get into two things, because you, you hit on automation, which is, which is one of the, , core pillars of what Luke does beyond customer experience, the second kind of intelligence. , and you know, I‘ve, you guys have told a story to us a few times, over dinner and, and whatever the case may be about, how you've, how you've learned from loop and use that to decrease, refund rate over time and pulling some, some loose statistics, without getting into sharing, you know, too many specifics or anything confidential about the business. you know, your refund rate is, like 20, 25% better than, than average in apparel. And it hasn't always been that way. You've kind of evolved leveraging some of the insights from loop along the way to get there and maybe share for a few minutes about how, how you, how you've done that and what you've learned and how that's changed your, you know, your supply chain, your merchandising, your planning, your buying, all that sort of stuff.

Dave Wardell (12:29):

Totally. , you know, I mean, I think for us, twofold, you know, really the first thing is, is just, and analysis around what products are coming back, how often, why you can get that from a couple of different places. But I think when we've been able to, get it more quickly connected into our BI tool, match it up with sales data and really understand the profit that we're driving from a single skew.and, and that for us is really important. , if you look at like, especially if you differentiate between a refund and exchange, I'm sure if anyone here on the call that's operating a brands were to go through the actual economics of each of those units. So an average unit re refunded versus an average unit exchanged versus just an average unit sold. , you're going to see some pretty stark nbers there and that's, and that was like, it's a huge piece of what informs, , our, some of our merchant going back to our merchandising strategy, like Homer reference. I mean, if we look at, you know, let's say we're losing net after fulfillment back and forth and free shipping back and forth and processing, and some shrink and, and waste of products, you know, you're going to, you might be losing anywhere from 10 to $50, depending on the cost of your goods and the cost of your shipping on a single refund, if you're not charging anything for it and, and that encompasses the original marketing and fulfillment costs, right? Cause you have to take that into account, on an exchange, you're going to be usually retaining that value, like some value, whether it's, you know, zero to 20 bucks you're going to be retaining that. And so the single simplest thing to fix and figure out is, are there any products that in particular just getting refunded, right? That means it's a bad product. That means you're losing a lot of money on it. , and a lot of people aren't liking it, for a variety of reasons. And so, you know, if you combine that and you're looking at gross margin, if you're looking at, you know, the cost of market for that item, you might see something that you're just not going to merchandise into in the future. We've dropped in prior categories as a business.not just, you know, where they have sold well upfront, but the gross margin hasn't been there and the return rate has been really high, in particular refund rates, because you lose so much on those transactions. And so, that's, that's something that we look at with every new product launch is we're looking at return rates and specifically within the return rates, the reasons and the refunds versus exchanges. so that's a big piece of it. And then like stepping back, if we think about how, you know, what we're trying to do as a, as a direct to consumer mainly business, but really, you know, we're operating three different channels now. So as a brand, as a retailer, , you know, we're trying to drive as much lifetime value as possible, but the lifetime value that we're looking at is more contribution-based it's after all of our direct operating costs and variable costs.

And so for us, returns and refunds and exchanges factor directly into that view, and, you know, managing down that initial and overall return rate through your merchandising decisions and through your return policy is key. , but then shifting people within those from refunds to exchanges, like I mentioned, you know, is, is going to be like the, one of the cleanest, cleanest, and easiest ways, to, to make that happen. Right? Cause those are operational ways. Those there's operational levers, you can pull there, there are, you know, return policy levers. You can pull, it's not so easy to all of a sudden just change your merchandising allocation and your, and you know, future seasons of goods. , those are gonna take, you know, just like they take months and years to build up. Those are going to take months and years to change usually, unless you are extraordinarily nimble. and so oftentimes what we've seen is, you know, from a profitability of a customer over their lifetimes, you know, the quickest way that we can actually change that as just getting people to, to keep a gift card to, to exchange for a size or change for something new, instead of sending that, sending that item back, you now.

Jonathan Poma (16:59):

Well I'm and to go, yeah, to maybe take some of that, even, that awesome stuff out of, out of like the philosophical into, into the hard nbers. , and I, I won't share specifics cause it's, it's your, your data and sensitive data, but, let's maybe talk a little bit about, you know, and I'll share it from the loop side. So we've, we've loved to say for a very long time that, you know, a great returns experience drives lifetime value, but for early years in the business, if we were really pressed on that, our, our data backing it was, was kind of paper, paper thin.

Jonathan Poma (17:32):

It was well, we were confident that they come back and you could see repeat purchase rates, but we hadn't done a little bit of, it was lack of sophistication and a little bit of a lack of lack of focus, but we, we couldn't, we couldn't put a hard number on how much it increased, lifetime value and there's a whole causation correlation thing we could, we could probably talk about in a few minutes, but your, your data, and honestly, I've, I've long been massively impressed with just the sophistication of, of the Chubbies business and how data-driven y'all are, and the kinds of things you look at kind of under, under your leadership. Can you maybe talk just for a couple of minutes about like the different types of ways you've looked at breaking down customers who have returned and what that's meant, or what the, what the lifetime value of customers who have returned versus customers who haven't has, has looked like?

Dave Wardell (18:22):

yeah, sure. , I mean there, you know, there's, there's tactical ways. We have looked at it from a merchandising perspective, saying, you know, these are customer, this, this product had a high exchange rates. , but, but it was exchanged bigger, high return rate is exchanged for other like items or just different sizes. And so, for us that is, , that's a sign that the customer like a product. And so we, we take a look at those customers in particular and see if they come back and buy another one, in another season, cause that could, you know, that that ultimately is going to be indicative of, of, you know, if that customer really, truly did love that product and maybe there's just a sizing problem or size and guide, or when we first launched it, didn't have the right fit and have the right representation of color.and so that's one thing we look at there that is more tactical on the merchandising, , broadly for the business. You know, we're looking at a few different ways we want to understand, obviously at any given time, you want to understand, , how your lifetime value and how your reorder rates are trending. , I don't think that's any type of secrets, , in the, in the industry. , people have been talking about that for a long time. , I think for us, when we, , when we're trying to look at what are the ways we can improve that and drive, drive the higher value, , drive higher profits in particular, , we are taking a look and trying to build out cohorts by how those customers are interacting with us. And one of those ways that we look at on the ops team is we try to understand, , you know, what are the different interactions with the customers are having, you know, it could be around, , outbound shipping methods.

it could be around, , our, , it could be around, you know, loop and, you know, people interacting there as well, obviously. And so the, you know, the view there that we get into is we look at people who choose to do gift cards. , we look at people who choose to do, , who choose to, you know, shop that moment, pop out on site with their credit, , through the loop app and, and actually make a, a whole another purchasing decision effectively. , and then we look at, you know, the more inline, you know, size or color exchanges. , those are, , and then finally those three, we can kind of roll up as well as like I'm, I personally consider all of those, , , that I'm trying to gear people towards. And I look at that versus an average customer who isn't touching the platform hasn't done or, you know, or return ever. and I look at that against people who have only done refunds, , I, for us like what you're alluding to, like, it's a pretty, I was even pretty surprised when we first started seeing this information that like how, how distinctly a higher, , in particular gift cards and the, and the shock now features are, , you know, they're, they're more than double. , as you mentioned, there's some correlation, causation. My perspective is, you know, taking into account the customer experience side of things is that either way, , , that means that our highest lifetime value customers are coming across and interacting with this platform. And the experience needs to be just as good, digitally as our, as our eCommerce site, as our Shopify digital experience, , as being, you know, these are people that are likely part of our community experience are experiencing our social and our emails on a daily, weekly basis.

that needs to be a uniform clean, easy digital, first relationship at every touch point. , and so for me, you know, even if there's not, you know, even though we don't have the exact specific science behind, how much is the loop causing it, , I'm looking at that Santa's all right. Like, we need to make sure this is up to snuff and, you know, it is a uniformly positive, smooth experience on the digital front. So I'm sorry I don't have any and really excited. That's great.


Yeah, no, that's great. But, you know, and, and, and certainly leading the witness, I guess a little bit with this question, cause you know, I talk, I talk about this stuff, so, so regularly, and I think you do too, but like what, what you just said is I believe, and let me repeat it back is, is, , you know, it's not a 20% increase in lifetime value. It's not a 40% increase in lifetime value customers who experienced loop and return a product through Chubbies, , have at least a 100% increase in lifetime value. , and in many cases, , significantly more than, than two X that, that lifetime value.

Dave Wardell (23:03):

Yeah, totally. And with the caveat that, , you know, a fair amount of them are probably just hire a fair amount of them are probably, you know, just simply like higher touchpoint, like more regular customers, more likely to come back. They're more likely to interact and exchange and try new size or sense, or they're buying more often sending them back more often. But I was, I was shocked by the differentiation, like the level to which they were more valuable. , it's now, , it's now causing us to dig in deeper and trying find more insights into exactly what are the difference makers there. , we're now starting to look at our policies and say, okay, how do we continue to optimize the policy in particular, it's optimize the policy in favor of these higher lifetime cohorts that are geared towards exchanges. , continuing, you know, cause that not only right, it's proving itself out on the revenue side, but you know, we know from looking at our per unit economics, that the, , that the profit side of the equation is also benefited by crafting your return policy in the right way. And so, , those are all things that we're continuing to iterate on. We're looking out at what people are doing in the market, but then we're also saying how it could be B how could we do it a little bit different based on, , how our customers typically interact with us when they send back returns versus exchanges versus refunds, et cetera. Yep.


Awesome. , well you led right into my question, which is, is how are you guys, , how are you guys kind of changing your business and investing kind of strategically in returns, but maybe, you know, because I think everybody here knows a lot more about, , retention as a whole and not just, not just returns and you know, what you guys have built it at chubby is like the, the community, , the community, the loyalty, , the like almost tribal, , fan base, you guys have developed and maintained over time.

how, how else are you, like what, what are you focusing maybe top three priorities when you think about a we're focused on customer lifetime value and retention in 2020 and heading into 2021, especially in this new world where, you know, twice, you know, retail footprint might be 30% less in North America and that that's gonna shift more online. How are you guys, , kind of investing strategically and in, , building lifetime billing for lifetime value versus just first purchase?

Dave Wardell

totally. You know, I would say some good and some bad there, right? , our, our store footprint is now down to five. Thankfully we had a really flexible, , sleep, , from a lease perspective. And so we were able to be pretty nimble through the most recent COBIT crisis. And what's cut Dave from, , down to five stores from home man. At one point we were up, we were at 14 stores, mostly popups, but, , it's been, it's a pretty dark hole back there.

that didn't all just happened in the last few months, but, , we were already starting that strategy, but I would say, you know, for us, we thought, , the physical return was actually going to be like a, , was going to be a pretty critical thing for us as part. And we were actually pushing you guys to develop our point of sale stuff. Pretty hard. It was, it was a very direct conversation if I remember correctly. , but, , but I think the, , we're actually backing off there and we are thinking more VR refocusing back on, on digital there from a strategic perspective for the business, but then that plays out through all facets of the business. , you know, our operations, we are, , we are re gearing back towards more digital, like less focused on offline expansion being supported by our general operations and that plays through in returns, return policy, all that.

, you know, I think for us, , it's another, you know, we're also not afraid and not, , don't shy away from learning from what other people are doing in the market, you know, just because we were early on, this doesn't mean that we can't actually find some better solutions out there. And so like, , you know, looking at I'll call out in a positive way, like brick, linen, and Tacoma. I think they're doing some really cool stuff with, , with their, with their builds that, you know, we talked to your team internally and, and, , and, you know, speak very highly of, of their teams from you guys, working with them. And, you know, we, we think very highly of those teams as well. And so, you know, I think they're, you know, Brooklyn in their landing page of, of really being geared towards understanding that this is a returning customer.

This is someone who's purchased from you before they should be interacting with an exchange in a different way than just shopping the fresh site with all the normal CPAs. , I think is something that we, that we really thought was cool. And, and we're, you know, thinking about how we want to do that for ourselves and what our take on that would be. , I think something that we do a ton of, that our customers come to rely on as far as his gift with purchase and, and different types of, you know, in cart, , offers an items. , you know, that's something that, , that Tacomas, you know, has built in and, and has as part of their whole process that we saw even when you are returning. And so we're rethinking, how can we, how can we use that to incentivize people, , in the right way for the right behavior?

Dave Wardell (28:16):

, again, these are returning customers. And so, you know, we know typically what gifts would purchase and different items, , that we would give away work with those. And so really narrowing in on how, , how we provide those incentives to the people coming back. , I, and I guess we're, we're coming up on time now, so I'll cut it off there. Yep. No, no, that's, that's great. , yeah, they, this just reminds me that we, we should just chat a lot more often on this stuff, , and join at a time where, where compete, where can, , work and interested parties find you, if they'd love to, they'd love to learn, learn more or talk or anything like that. Yeah. I mean, I'll always happy to connect. , I'm just, , since, since pretty much every email marketing engine out there has my personal email or, you know, can seem to make a difference these days.

Dave Wardell (29:06):

, I'm just Dave at Chubbies, it's pretty simple. , so, , happy to feel the inbounds, I will say, like the patients, there's a high likelihood chance. I don't get back to you right away, but, , if I can be helpful, I'm happy to be, , you know, feel free to, you know, read, ping me their LinkedIn or something like that. , I would prefer if it's not sales space because I already get enough of that. So, but I'm always happy to, I, I genuinely enjoy talking to other operators and, and swapping because every single time I do, I learned something. So, , so if it's, if it's that, , feel free to have at, it would be great to connect. Yeah. Likewise, I didn't mean to put you on the spot with email. I figured maybe like Twitter were open or, or something. , yeah. Everybody ever created, so yeah, never, I can't say the same, but, , I'm, I'm at Twitter, which is sitting here in my background on, I got, , everybody thanks so much for the opportunity. DMS are open, , and it's Luke can help or if I can be helpful with, would love to chat with you, , really appreciative of the opportunity to speak. Thanks so much. Thanks. All. Thanks Boba.