Revolutionizing Ecommerce Returns With Peer-to-Peer Models - ProShip ParcelCast Unwined Episode 44

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All right? Welcome back to another episode of Pro Ship. Parcel Cast Unwind. Today's episode is called Broken Returns. How peer to peer is changing the game. We're tackling a topic that's both a headache and a hotbed of innovation in e commerce. We're talking about returns. And this is not just the usual ship it back scenario. We're diving deep into the world of peer to peer returns, a concept that's reshaping how we think about reverse logistics. So joining us today we have Manish Chowdhury from Kahoot along with Justin Kramer from Pro Ship. Justin, you want to do a quick intro?

Sure. For those of you who don't know me, I'm one of the co founders of Pro Ship. I've been doing this for about 25 years and in that duration I've had the privilege of being able to work on some systems that span four continents, some systems that ship over 3 million parcels per day, and all of the systems from zero to that 3 million and beyond. So I'm very happy to be here today, very happy to be able to lend my expertise.

Awesome. And Manish, let's hear from you.

Well, thank you, Katie. Thank you, Justin, for having me. My name is Manish Chautri. I'm the founder and CEO of Kahoot. Kahoot is the world's first peer to peer order fulfillment network. We launched the service in 2018 and we pioneered the peer to peer collaboration between brands and all the service providers that serve them. I'm super excited to bring to you the extension of that technology peer to peer returns in today's podcast.

Awesome. Thanks gentlemen for joining me today. Before we get started, we've got a cocktail. We're going to raise a quick glass. This episode's special drink is the pure return old fashioned. So cheers gentlemen. I know we're having a mixture of cocktails today, but the original plan was this one had a little kick of coffee. Just like how our discussion explores traditional return methods and how they're being revitalized by this fresh forward thinking concept of peer to peer networks. So creating a truly peer effect return experience. So let's get started. Get right into it, Manish. Let's start with the basics. What is the current state of returns? What are the pain points that we're hearing for retailers and consumers along with those traditional kind of return processes?

That's a great question, Katie. Returns the way we see it has been broken for a while. Just imagine yourself sending a return back to a brand or retailer. Brands and retailers have been Forced in the age of Amazon to provide free and no questions asked returns, which is a huge drain on brands profits we're talking about in certain verticals and categories like apparel. 20 to 40% returns is not uncommon. However, the brands have to bear the cost of reverse logistics, shipping the item back to the brand. So brands pay for shipping twice, once to send the item back to the consumer and then have it returned back at their own expense. Second, the brands have the burden of inspecting and restocking the items. And if the brand has their act together and they treat returns with priority, this can happen. Especially the window to resale items is limited. When you think about a apparel, let's think about swimsuits or winter gear. Whether it's sweaters, I'm not buying sweaters anymore in New York. That window is over. So you can imagine this is a massive, massive problem. This is $100 billion problem and it is totally broken. So happy to dive in. But that's the state of current returns. And finally all the solutions that are available to the brands and consumers today only service the customer or the consumer. It just makes returns faster and easier at the expense of the brand. So without any questions asked, brands and retailers are losing money. In an era of high inflation tariffs when the profits are record low, we just cannot ignore 20 to 40% of the items that are being returned. And that's a direct hit on the brand's profit. Profit margins.

Yeah. And Justin, from your perspective, how are these pain points kind of impacting the industry as a whole?

Well, as we look at the slow and inevitable push from all brick and mortar that we had 30 years ago to now, low 20s for E commerce nowadays that March is going to continue to go up. And whereas there is basically zero cost to a retailer to return in store. Right. It's literally it can be inspected by the person that's, that's, that's there at the counter and it can either be thrown into the recycle bin or into directly into the restock bin. Right. It, it the incremental cost is so small. That is not the case with E Commerce. Right. We have the, we have the time off the shelf. We have whether or not it's going to go out of season. We also have two legs of shipping associated with that. So as we talk to retailers, returns is one of the last frontiers, if you will, where, where something needs to be done to be able to get logistics costs under control. We've already worked to the forward logistics on making sure that, that we can meet an expectation we start all the way up in the shopping cart to set that expectation. So it's very clear so that as it goes through picking, packing, sourcing, all of those things, we can meet that expectation at the smallest cost possible and really compete with our brick and mortar resources. But as soon as it leaves our warehouse, as soon as it leaves that ship from store location, all of a sudden it's back to the wild, wild west. You might as well see tumbleweeds and the cattle skull sitting there because that's what's going to happen to your, to your profit margin.

And with these kind of challenges in mind, we've heard rumblings from Kahoot of a unique solution, this peer to peer returns. Manish, can you explain what that is and then how it kind of addresses the issues that we've seen?

Yes, of course. Thank you Katie and Justin for that background. Well, the good news is the new frontier has arrived in the form of Kahoot peer to peer returns. The concept and the solution is very simple. Say I'll use an illustration, I'll use an example to bring it home. And just in your minds, folks, visualize the map of the US and you want to stick around because this is unlike anything you've seen or heard before. So you want to stick around till the end. So let's take an example of a jeans, a women's apparel, you know, one and a half pound ladies jeans. And Amy in Dallas, Amy in Los Angeles, California wants to return this item for whatever reason, let's say she didn't like the item or for whatever reason, she has to ship the item back to the brand's warehouse in Dallas, Texas. And it's going to cost about $8.50 if the brand has optimized reverse shipping. And I've actually seen real life examples where the brand is shipping via ground but asking the consumer to return via 2 day error Paying twice as much. So this is not unheard of, this is not unusual. This is all coming from the data. So now Amy in Los Angeles returning the item back to the warehouse. Now the warehouse has to receive the package, inspect the items, perhaps put it in new packaging if the tags were broken or the package was unsealed and and then put it back on the shelf for it to be picked and packed again. And let's take an example that they do do that. Then Amy, who happens to be in Casper, Wyoming buys the same identical item a week later. And then somebody has to go pick and pack the item and ship it to Amy in Casper, Wyoming From Dallas again $8.50 in shipping cost, which is again borne by the brand, and about $6.50. If you add up all the costs in the warehouse, opening the box, inspecting, refurbishing or whatever else you need to do, you're talking about a significant expense and potentially the window to resell the item is limited. That's if you're lucky and you sell it to Amy in Casper, Wyoming. Otherwise that inventory gets stuck, it loses value exponentially. Whereas with peer to peer, what Kahoot has devised is enabling Amy to ship the item directly to Sarah. So from Los Angeles, California, the item will go directly to Amy in Casper, Wyoming without going through the warehouse hop. And that shaves one entire leg of shipping, that shaves entire burden of inspection, refurbishing and putting the item back on the shelf and picking and packing. And that's the ingenious solution that Kahoot brings. So what's the economic benefit? 64% less cost, 4 times faster returns processing and more than double the carbon emission footprint savings. So this is a game changer for brands and retailers, especially the ones that have significant returns. You're mute, Sorry.

Thanks, guys. Justin, this is pretty innovative compared to what we've seen currently available in the market. What are your initial thoughts and why do you feel like this is gaining traction now?

So first let's look at what's in the market right now and we'll just call them post purchase care components. Right? Because they really, they give you a portal looks kind of like your website allows you to pull a label. But it's exactly what Manish said. Right. It's going back to, it's either going to be thrown away. Okay. Which is, that's definitely not green. And I mean that, I mean that from a financial and an environmental method, right? It's going to be thrown away or it's going to go all the way back to some facility to be sorted, put back on a shelf in a different skew. Right. Because now it's used, can't be new. Right. So we got all of these other things that we now have to worry about even more. Carrying costs, all of that. And the only part that's being taken care of is that it's convenient for you or me to do. Okay. In no way, shape or form does it take. Does it actually help the retailer to do a better job with their inventory, to do a better job with their logistics spend? Okay, so this is a large piece that's missing in the, in the logistics world right now is a way to tackle that spend and a Way to where it makes sense. Reward customers that still are going to bracket. Right. If you're in retail, you know what bracketing is. Okay. That are still going to bracket. They're never going to take those tags off the initial item. They're going to try them on once. Go. No, this doesn't quite fit the way I want it to. This size fits perfectly. Okay. These two are going back. Well, why go back when they can go forward? Okay. We already know that there's a lot of technology out there right now to assist those return folks. As a matter of fact, there's entire companies built around taking returns and determining whether or not they just go straight in the recycle bin, the Goodwill bin, or whether or not they can be restocked as like new or slightly used. Right. So we already have AI technology that can help that part. So if you can put all these parts together, you can create a, create a new mode of shopping. Even where somebody basically wants to shop something that is semi second hand in their region of the country or globe, or especially if we think about this globally. Right.

Shopping someone else's closet.

There we go. I mean, Plato's closet. There's a reason it exists.

Yeah. Manish, trust is a huge factor here. What are the essential elements that need to be in place to create a really trustworthy and reliable peer to peer experience?

Katie, you're 100% right. I mean, we pioneered Kahoot, pioneered the peer to peer fulfillment when nobody thought that was possible. And Kahoot powers some of the most demanding fulfillment programs in the world that the traditional players would not touch, such as Amazon Seller Fulfill Prime. So we've already proven that through the use of clever technology and unique business processes, we can establish trust. And in the same exact way, trust is built into every return that Kahoot powers. Trust is the foundation of Kahoot's peer to peer returns. Every return goes through AI powered screening to verify quality. And both the sender and the next buyer, Amy and Sarah, rate each other just like they do on Airbnb, Uber or ebay. This isn't just about returns. Kahoot is building a trusted network where both brands and consumers benefit from from safe and seamless transactions. And the more brands join, the stronger the network becomes. And in fact, Kahoot can weed out fraudulent returns far better and far more economically than the traditional solutions. And as Justin mentioned, the solutions that are available today to every brand, every solution out there, it's only making things worse economically for the brand. You know you're sleeping and returns are piling up. And it's just making things significantly easier. And I'll use an offline example. Let's say you walk into Staples and buy a 99 cent paperclip and you come back home and for whatever reason you decide you don't want that item anymore. You cannot call Staples and say, hey, I bought this $0.99 paperclip. Could you just, just how do I process the return? They'll say, hey, come back to the store. Only then return the item. Only then will you get 99 cents back. But. So why is it any different in the offline world? There's so much chatter about Omnichannel. But no, online returns do not mirror Omnichannel. But because it's broken, and that's exactly what Kahoot has pioneered, that we should be treating our returns with same care as we trade forward logistics and brands and retailers should be profiting better and not undertaking the entire burden of handling customers returns at no questions asked and shouldering the entire economic responsibility.

Yeah. And Justin, what are the key benefits? I know we talked about trust, you talked a little bit about the economical benefits. What else do you see that this peer to peer returns model offers to retailers and customers?

Centralization. And this is one of those things where as I continue to shift more and more of my own shopping online, as I move around the country and do all these other things, I find myself leveraging products like Shop and like Shop Runner and all these others that help unify my data entry into small e tailers. Which means I've got a nice digital footprint. Which means if I've ever done a return and it happens to be through, it happens to be through one of these sites that, that Manish is powering, well then I've got a trail of trust. Right? I don't have to build trust at every single e tailer. I can carry my trust with me almost like a credit score. I'm not saying that's what it is, but you know, I can. I, because I've, I've, you know, I've bought beverages from over here. I've bought, you know, travel pants from over here. I've done all of these other things. I've built a history of being a trustworthy returner. So at this point in time when I go to a brand new place, let's say it's an electronics place, okay, and I have to return a larger item, I've built a series of trust and it makes it easier for that e tailer at that point in time to determine do I trust this Guy to pass on a multi hundred dollar item to the next consumer maybe with a little bit of, you know, pictures and things of that nature involved. But do I trust this guy to actually move this on or am I going to have to actually bring that back in, run it through a refurb, run it through a series of tests before I send it out? Okay. And I think there's a lot to do there because again, we're talking about a relatively low cost thing for people that we trust versus the current status quo for returns on people that we can't yet trust.

Yeah, and I think there is. I'm not sure if we talked about this maybe in one of our previous discussions, but there's some kind of incentive, right, for you to do that too. Manish, can you talk a little bit about that?

Yeah, absolutely. And to Justin's point, know most people are good. Maybe there's 3 to 5% abusers out there. You know, we are basically, we've designed a returns framework with the abusers in mind as opposed to the 90 plus percent of the people that are and can be trusted. And as Justin said, moving returns forward, not backwards. And that is exactly what Kahuda is doing. And through the use of technology, it's like if Visa and MasterCard were to simply operate on fraud, strictly looking at transactions from that user on one store, they would never be able to catch the fraudster. So why are we treating returns any differently? Let's say you have a history of returns that returns goes with you from Kahoot Merchant A to Kahoot Merchant B to Merchant C. You don't have to start from ground zero. And that is what the foundation of our network technology is. And that's why we say we are all in cahoots. That's exactly where the brand name came from. But going back to your point, Katie, as to how do we ensure, first of all, it's a myth that most returns are. The 40% of the returns are for items that are brand new. In fact, 40% of the items are in pristine condition as though, you know, nothing happened to that item at all. And you'll be shocked to learn that. And only 20% of the items. And this is based on our data and third party and public domain information from that have basically packaging and the product is still great. It just might have. Somebody has ripped open the packaging. But the item itself is in great condition. It's only the 40% of the goods that may need to be dealt by a human in the warehouse before deciding whether it can be Passed on to the Amy's of the world, sorry, Sarahs of the world. So yes, we have added some incentives to ensure people behave as good web citizens. When I'm returning the item to a brand, I have an obligation and a responsibility of making sure that I'm not destroying the item. And however Amazon not to single them out, but they have at the expense of the seller, they let the consumer do whatever they want, however they want and they stick the bill to the seller because it doesn't cost Amazon any money whatsoever. So we believe that that itself is broken. And the days of free, no questions asked returns are going to be over very soon if they're not already over. Number two, yes, we have added some incentives for this dual rating system. Imagine Uber. You take your Uber ride, you're going to rate the driver, but the driver is also going to rate you. And so we've added unique cashback incentives. So when Amy's returning the item, we're going to ensure that Sarah gets to rate Amy's performance as a returner. And likewise Amy gets to return and gets to rate Sarah's performance if Sarah is being truthful and honest. And that builds an additional layer of trust because we just don't implicitly trust, but we verify using data, pictures, technology, the customer's lifetime transaction history, how often do they return, when do they return? So all of those enable us to make the smart choice and smart decision to ensure that that the package can be confidently passed on as opposed to passed backwards to the warehouse.

Yeah, and I know that this idea is something that you guys have been working on for some time and you kind of alluded to it, but where do you see this evolving in the next few years? What are the next steps?

Yeah, we think that this is going to be the new standard for returns because the current standards are completely unsustainable from environmental standpoint, from financial standpoint and just being from logistics and rising cost of inflation and Justin can tell you the GRI gross rate increase and parcel shipping carriers every day, every six months UPSs and FedExs and USPS are raising cost. Everything is going up. So in the age of AI and technology and when we can can have autonomous vehicles drive ourselves, to me the current state of returns feels archaic. It's completely unsustainable and it feels irresponsible, frankly. So peer to peer returns again, it's not all or nothing. Remember, 60% of the items we believe are perfectly they perfect are eligible for peer to peer. The items that need to go back to the Warehouse for any form of processing. It will. And Kahoot combines the best of all to bring this new solution that can have a profound impact on retailers profitability.

Yeah. And Justin, what are your thoughts on this? Is there anything else you see coming?

Well, actually, I want to look back to the past. I want to look back to 2018, 2019, where anytime I went to a trade show, two words came out. Faster, freer. Right. Every single customer was expecting that was the. Was the hook of, Of E commerce. But now when we look at it, we're not seeing that. We're seeing, make me a promise and stick to it. You can sell me a better promise, but stick to it. Okay. We've gone from that faster, freer to predictability for value. Okay. And I think that that is exactly what we're going to start seeing at the end of this. Of this retail chain is we need to see predictability and fairness. Fairness to the, to the. Not only the consumer, but also to the retailer themselves. So I do see this as an inevitable change because it is one of the few areas of the legit of logistics where it's very difficult right now to predict what your costs may be. Okay. And more importantly, it's very difficult right now to find a way to control those costs. We have spent our. The entire 25 years of the past year working on. On various ways to. To control those costs, meet a customer expectation. We actually call it enforcing the customer's expectation. Right. But that ends as soon as that package leaves the warehouse. There's got to be new ideas, new features. And I think this is a great one, not only for the green bottom line, but for, you know, the green in the atmosphere. Right. That we're actually going to move this. I mean, to me, the perfect. The perfect thing is I'm shipping from the South. It makes it to the. To the Southwest, and then it goes to the Pacific Northwest. It's always moved further away from its original point, but with the lowest carbon footprint and the lowest overall cost to that logistics chain as possible.

Yeah, yeah. And that's great, Justin. And to wrap things up here, we're going to play a quick game of this or that. I'm going to ask you guys a couple questions and have you pick your favorite. So we'll start with just some fun ones before we get into stuff that's more related to the topic. So, Justin, would you rather be able to live forever or travel to any place in the world instantly?

You know what? I'd live forever because I'll get there eventually.

How about you Minis?

Well, I take the other option. If I could go any place, anywhere, instantly, I would have fulfilled my life's outcome and I don't need to live forever.

Right, but then you miss the journey on the way there.

That is true. All right, Manish, how about would you rather have a perfectly brewed craft IPA or 100 year old vintage Scotch? What's your beverage of choice?

Oh, wow, that's hard, Katie, because I love both, so that is going to be a really hard one. God, can I have a little bit of both? I will never turn down a perfectly brewed IPA. I love IPAs. And Justin, it's a very hard one. So both answers are equally right.

Yeah, I know.

Hands down, it's gonna be a whiskey, therefore the scotch for me. So.

All right, how about, Justin, you're in the kitchen this time. Would you rather be able to cook any dish perfectly or. Or be able to grow any plant?

Cook dish perfectly. Plants are there for oxygen. That's.

Yes. How about you, Manish, are you cooking or are you planting?

I think I want to plant and save the world because right now we are teetering at the end and if we don't reduce carbon emission, and that was part of the purpose behind Kahoot is to reduce, really create something that will be endearing and enduring. And I feel that our world is from a climate perspective. We've taken a backseat, we've gone backwards. So while Justin is enjoying his scotch, I want to make sure that he can live forever as long as the world is there for him to live in.

Yes. All right, we'll jump to some topic ones. So. So, Manish, would you rather integrate returns more tightly with resale marketplaces or keep them separate? What do you think about that?

I think we believe in open network. We believe in flexibility. We believe in more choices. So just to clarify, returns are not secondhand goods, folks. Returns have nothing. You may be getting an item from a brand, from a retailer that was previously returned by somebody. So please do not confuse returns. They are perfectly good. As I said, 40% of the items are untouched. But nonetheless, making products available at more places where people shop, where the shoppers are. I'm all for that.

Yeah. Justin, I assume you'd agree with this one, right?

I'm going to explain it a little bit differently, but absolutely, in the end, 100%. Agreed. Now, I believe in. And we're going to go back to food here. I believe in the concept of deconstruction and isolation. Okay. Separation of concerns is a very core concept to software engineering. And so often you have to break down the parts to figure out how they should go together. Because right now we have this big monolithic crappy part that says the retailer pays for everything. It always comes back or gets thrown away. Okay, So I think we need to break the little the pieces apart, figure out where the value is and where the loss is in each of the pieces, whether it be from, from the actual shipping part, the inspection, the qualification, you know, so on and so forth. Break them apart and then bring more of it back together in a way that makes sense. So I'm all about bringing it back together, but you, you kind of got to deconstruct a little bit first.

All right, and would you rather, here's a good one, invest in more fraud prevention or focus on making those returns completely frictionless? Justin, I'll go to you first.

Well, right now they're frictionless to the, to the consumer as it is relatively right. I keep it or I throw it back in a box that you provided the label for. So if given those two, I would pick, I would break trust. But in, in reality the whole system is an open secret that is broken and we just live with it. So I would go with the third one. I would try to fix the process.

Yeah. How about you, Manish?

Well, for us, trust and safety are non negotiable. So it's, I don't think it's either or, you know, it's like saying, hey, do you want to easier online banking or do you want to make sure your funds are secure? You know, I don't think it's a choice. In fact, I believe that a great system and technology offers both. And the point. Friction. Friction is. It's not about friction, it's about responsibility. You know, I think we've lost the art of responsibility as a consumer, you know, when I buy something from a store, I expect to retain original packaging. I expect to not rip things off if I want to return it for full money and you know, restocking fees if it all applies, I think, you know, just like the sales tax, you know, in the early days of E commerce and Internet, just to incentivize people to do more shopping online, there was sales tax incentives and I think it's the same thing with online returns and I think it has gone too far. So for us, trust is non negotiable but we've built a system that is equally frictionless. So from a kahoot solution standpoint, it is literally no difference in how Amy would return the item, and she'll still put it in a bag or in a box and apply a shipping label. It's as simple as that. It, it does not make things. It doesn't add a layer of friction. And if anything, Amy gets an extra incentive for doing the right thing, which she would not get through the traditional channels.

Manish, I want to add to that. You mentioned the responsibility, and I'm pretty sure I'm the only person on my block that has a closet full of dated boxes. Okay. Why? Because anytime I buy a piece of electronics, I take its box, I write its date on it, right? And I keep it in that closet until at least 90 days past that initial warranty. Because if it, if it breaks in the first 90 days, I can usually send it back to whoever I purchase it from. Beyond that, I'm going to have to send it back to the, to the manufacturer. Now, that being said, how many items have I sent back in my 50 some odd years of life? Well, we can count them on one hand, but I still keep 90 days of that original packaging because if I have to, it's the responsible thing to do. And it ensures that no additional damage comes to that goods on its way back to the whether it be the original reseller or the manufacturer.

So we've covered a lot of ground today, exploiting the ins and outs of peer to peer returns and its potential to revolutionize the e commerce landscape. To wrap things up, I'll give you guys one more chance to share your final thoughts. So, Manish, we'll start with you. What's the key takeaway that you want everyone listening to?

Remember, Katie, I think this is a gift for brands and retailers in 2025, when they're battling with tariffs, they're battling with inflation, they're battling with high freight cost, high shipping cost, high advertising cost. This is the one lever that they have that they can pull and impact their bottom line. So I invite brands and retailers to come check this out. Like any new technology, new solution, there might be some skeptics, and that's okay. Just like Uber and Airbnb when they came out the very first time.

So.

So this is one solution that no brand, no retailer can afford to ignore. And you can get a lead over your competition. You can get an edge today that you cannot get with any other means. So come to Kahoot AI, fill out the contact Us form and talk to us and see if this is for you.

Yeah, yeah, those early adopters get in there early. Justin, as we look ahead, what's your final perspective on the future returns and the role of peer to peer here.

So in my 25 years in this industry, change has been inconsistent and the one thing that has changed has been the rate of change. We used to see interesting new technologies every five years for the first little while. Now we're seeing new things come out on a near annual basis and new challenges come out on what seems like a monthly basis. Manish talked about tariffs. Right. We see carriers starting to drop out of the of business. We see combinations happening, we see stalwarts that we always thought would never be be shaken and well, let's face it, people are running away from some of the big three carriers like, like a building on fire. Right. We are seeing combinations of carriers that are able to replace the national carriers. Change is consistent really. It comes down to if you're a retailer, are you going to lose money and wait for it all to suss out or are you going to look at your data, prioritize your needs and find the solutions that will hit those needs?

Yeah, and right now, I mean it's March right now, so we're still kind of in that post holiday returns period, barely catching the end of it. But it is the time to so look ahead. It's never too early to start prepping for peak to have that in place, you know, for when next peak season hits. So thank you both for sharing your expertise and your insights. It's been a great discussion and to our listeners we hope that you've gained a deeper understanding of peer to peer returns and its potential for the future. Here as always, you can find more information@proshipping.com check us out on LinkedIn. Until then, happy shipping, happy sipping and cheers.

Cheers.

Cheers guys.