How one founder built a billion-dollar business from retail trash

So one of the things that I would repeat to myself was, like, you normally don't want to take the jump because you're scared. There's like a fear. There's a risk element. Right. But like, what's the worst case scenario? Like if you believe in your abilities and your skill set, then if it doesn't work out, then you'll just go back and get another job. How do y'all I'm Elizabeth Gore. Welcome to the big idea from Yahoo Finance, the show that navigates the world of small business and entrepreneurship. As the co-founder of the small business funding platform, Hello Alice, it has always been my mission to help ensure entrepreneurs have the tools they need to succeed. So let's cowboy up. Today's big idea question is how can I turn customer returns into profit? This week's industry focus will be re-commerce. Joining me today to talk about this is the founder and CEO of Rebel, North America's largest returns re-commerce platform. Rebel is an online destination to shop open box and overstock essentials from baby gear to home goods and more. Emily not only turned Rebel into a multi-billion dollar business, but by reselling open box and overstocked items, she created a sustainable shopping solution, keeping over 25 million pounds of goods out of landfills annually. There is no one better to help us answer today's big idea question. How do I turn customer returns into profit? Let's talk to Emily. All right, Miss Emily, welcome to the big idea. Howdy. I'm so glad to have you. I love that you have horses on. That makes me happy. We match. I'm a horse, very much a horse person. But Rebel, what, it's just such an awesome company. Tell us the whole concept. Yes. Well, thank you. And thanks for having me. So Rebel is the largest returns re-commerce platform in North America. And what that means is we partner directly with brands and retailers, taking their returned inventory that would have otherwise been going into landfills, running it through our technology to quality check, and then we sell it on our platform to customers across the United States and Canada at a fraction of the retail price. So shoppers are able to get these unbeatable savings on all the brands they know and love. And our brand partners are able to stop throwing returns in the garbage and they're getting a net new revenue stream. So I don't think I've ever met someone who created an industry where you had to educate three different groups on what you're doing. Your investors slash bankers, I assume, the actual end consumer, and then the box stores. How did you approach that? I mean, we tackled them each individually. So obviously the investors were a critical part because we, as you mentioned earlier, we had to build, like it's not a cheap business to be built, it's got a big infrastructure. So educating investors on where returns were going. And I think that was eye-opening. I don't think that a lot of the venture funds had ever thought of returns that way. A lot of them knew a ton about excess inventory. That's very different than returns. Excess inventory, like the type of inventory that you can buy at a TJ Maxx or a Marshalls, that's all coming directly from a factory. It was never purchased by anybody. But returns is a totally different supply of discounted product, but it went to a consumer and it came back. And that black period or the gray period of it going to a customer and coming back holds a lot of uncertainties. There has to be a quality check that happens. And so it creates complexities as well. So a lot of education had to be done on that. It wasn't easy because no one was admitting that the returns were going into the garbage. So that also, you're trying to explain something, but there's no, if they were to call a mass retailer and say, I'm looking at this company, they're trying to tell me returns are going to a garbage. Are you putting your returns in the garbage? They were saying no and hanging up the phone, but they were. So that was one challenge, educating the retailers that there's a better way and that the solution that they had been working with for decades was a solution, but it wasn't an environmentally or acceptable solution in today's day and age. And then our customers, so our customers trying to get them to understand what Openbox is and to understand and to even fathom that all of this product was otherwise going into the garbage. Like they couldn't understand why this product was going to the garbage. So there was a lot of moving puzzle pieces. We're still educating. Look at me, my mind is blown. Every time we launch into a new vertical. So we started in baby gear, launched into home. We're launching more verticals, you know, all the time and continue to expand. Like every vertical, there's more education that has to happen. And you mentioned creating a whole new category. I mean, did you have to go into these big box stores essentially and tell them what they need? Yeah. I mean, I would say that was the most challenging part of building the business. And I think probably a lot of founders and business owners will experience this. It's kind of like the one thing that I'm like, oh, if only I had known. Sometimes when you're creating something brand new, you assume that because it's a good idea that everybody's willing to accept that idea or can see that idea. And so the most challenging thing is we built this. So step one was, OK, all of this product is going into landfills. Step one was we need to build the technology to be able to handle returns for e-commerce at mass scale. And that did not exist. So we built this. Then it was trying to get the retailers and the brands to admit that they were throwing their returns in the garbage and no one wanted to admit it. And so we would go into these big meetings with like our decks and our like demos of the technology. I mean, it's a it's a no brainer. Right. Like why wouldn't you want to use our solution and our platform? And we would get shot down like people would say, like, we love what you're doing, but we we don't have a returns problem. And it was a it was a big struggle for myself and the team to push through that because we were like, are we crazy? Like, of course, you know, no one wanted to admit. Yeah. And that's awesome. Yeah. Right. Well, we're all crazy as entrepreneurs. Yeah. You're you have to like, you've got to be a little off. You've got to be crying on a treadmill. Right. Exactly. Yeah. And then once you've got one, I share with our small business owners, how did you leverage that then to say, hey, I got this, they trust me and go to other ones, because I think that's an important part of business is once you get that first contract, go back to the other folks and say, look who joined me. How did you leverage that? So for us, it was honestly a little bit of luck and perfect timing. I would say our first break was so no one would admit that returns are going in the garbage. Right. And we couldn't force it out of them. And there was a very large mass retailer that was about to go bankrupt or was on the precipice of going bankrupt. And I think maybe they just didn't care anymore about trying to, you know, so they basically approached us and said, look, we do want a new revenue stream from our returns. We are throwing them in the garbage. Can you help? Can your technology process these returns for e-commerce? And we said, yes. And I think that was a really pivotal time for us because it was mass volumes of trucks were arriving filled with returns. And so we now knew with certainty that there's a huge amount of volume of returns, 100% going to the garbage. We've now just proven that. And so and our technology is reprocessing all of these. So from there, we were able to build that case study. And then we were able to go back to these other major mass retailers and say, like, come on, like, let's do better. And we can we can work with you on that. OK, but then you have another customer set. Us the consumer. Yes. So which one were you building first? I mean, this seems like it's such a chicken and egg situation. So we were we had to build the supply side of the business first. So we had to build these relationships with the brands and the retailers to get these returns to have inventory for consumers to want to purchase. So that was what we focused on at the beginning. But then, as you mentioned, it kind of flips quickly because then it's like we're actually not a very good partner to our brand and retailers if we can't sell the product and then give them a return on that on that sale. So then it flips over to, well, how do we get the consumers to know about us and to trust us? In buying open box in some categories was still relatively new. Consumer electrics, there was refurbishment. We'll share with folks what that means real quick, because there's open box versus closed box. Yeah. So to us, what that means. Yeah. So we deal with all returns, which are open box. So the stuff that we are selling on our platform is never used product. It was simply returned. So a lot of the times, majority of returns when they're returned to a retailer, it's just a change of mind or the box was opened and somebody was like, oh, the color wasn't right or this is way too big. I thought it was a lot smaller or I thought it was a lot bigger than what it is. So that's classified as open box. There is a there is a e-commerce channel, which is refurbishment. And that's where the item could be used. It could be missing a part. And companies exist where they're a lot. A lot of times in consumer electrics were there. They're fixing these items. They're getting them back up to new standard. But they are there. They're used. And so we we deal in the open box category. Got it. And how did you originally fund all this? I mean, this is big infrastructure and software, both. Yeah. So it started in the basement. Of your house? Of the house. Oh, my goodness. So it started in our basement. It's actually nuts when I think about it, like we had transport trucks dropping pallets of returns on the sidewalk in downtown Toronto. And we would just carry the returns into our house. We had a sign on our house that friends had to come in through the back door because the entire front of our house was stacked high with returns. So in hindsight, it does seem crazy. Yeah. But at the time, it seemed completely normal. So we we raised friends and family money to get started. And then from there, I mean, we've we've we were venture back now. So we've raised a few different rounds of funding. Well done, by the way. That's hard. By the way, all I can think of is, have you seen the movie Oceans 8? Yeah. And she, I think Sarah Paulson, she steals all the stuff and just warehouses it. Yeah. Obviously, it's not theft, but for some reason, that's all I think about. And then the second thing is, are we not crazy? I started my business, too, when I was pregnant. We're insane. It's insane. I mean, it's like it's I was pregnant. It was the it had just started lockdown of the pandemic. So it was like, rip the band-aid, why not just quit my job and also start this? I mean, it was like, yeah, but I guess it was maybe this idea of like, is the world ending? We're in lockdown. We're wearing masks and like face shields like we can't go anywhere. Like now's the time. Like where's the risk? I love that because so many of our business owners, when's the right time? When's the right time? And there's never a perfect time, right? I mean, what would you tell these business owners that are like, when should I do it? What's your advice to them? I think there's never a right time. So one of the things that I would repeat to myself was like, you normally don't want to take the jump because you're scared. There's like a fear. There's a risk element. Right. But like, what's the worst case scenario? Like if you believe in your abilities and your skill set, then if it doesn't work out, then you'll just go back and get another job. Like there's no risk in that, right? The risk is to not take the plunge. And it's not every idea is going to work out. And even for our business, like Rubble itself has been very successful to date, but we've pivoted in and out of different ideas. We've tried things that haven't worked, but we were quick to pivot. So I think as long as you have that mindset and you're not too emotionally attached to like this, this exact thing has to work out and you're willing to be flexible, then it can work out. Wow. Such good advice. All right, Emily, hold that thought. We'll be right back on The Big Idea. Howdy y'all. Welcome back to The Big Idea. I am here with Emily, the CEO and founder of Rubble. I want to ask you for advice to the small business. Let's say like my Mr. Moon's in Healdsburg Plaza, my favorite little store, and a lot of them have either final sale or zero returns, but you say that's probably not a good idea. Can you give us your advice around that? Yeah. I mean, final sale is fine, but I think returns do have a big benefit. Not only on the customer loyalty and what we talked about with customer loyalty and a great touch point to provide to the customer where you can connect with them in a positive manner. It can be an upsell tool, but I also think it's really beneficial. It does bring in a new customer. We know that the customers shopping on Rubble, over 50% of them are discovering a brand for the first time. And that could be that they just couldn't afford the brand otherwise, but they can afford it discounted. And then they're also referring us to their friends. So I think that there is this element of you are capturing a different customer in that section of your store. And so returns can be a way to get a new customer to come in. That's just great advice. And you mentioned when they come back to return someone, they generally buy three times more. Yeah. I mean, that is a great, that's a good model. You're getting them into your store. Right. And then, you know, you can show them all the new stuff. So we talked on our show about dirty unicorns, you know, big mistakes you've made. What's one that you've made that we can all learn from? I think the biggest mistake that I made was thinking that the timing that I thought was right would be the timing that other people thought was right. So meaning like when you're building a new idea or creating a category that has never existed, you've been building it up in your mind for, you know, you're thinking about it 24-7, you're working through the night on this solution. But when you're meeting with other people, like they've got a whole other laundry list of priorities and what you're talking about may not even be on that list at all. And so like it's that idea of like your idea, all ideas are a bad idea until all of a sudden they're a good idea. But like where it flips over, it's all timing. I'm so fascinated by that. And if returns, just in general, so business owners who have to deal with that in their own companies, do you have advice for them just on that whole world of returns? I mean, that's our big idea question today is how do I manage returns in my business? I mean, it's about 17 to 20 percent of your regular price sales. So for some businesses... 17 to 20 percent? Yeah. Wow. This in 2024, it was 860 billion dollars of returns were going into landfills. That is insane. And that's like equivalent to 10,000, I know this fact, 10,500 747 planes fully loaded. In a year. And it just keeps growing. It's going to be a trillion dollars by the time 2026 ends. I'm blown away because in a million years, I don't think of someone's P&L that that is a category they're really thinking about. Well, it's not. Because this was an aha moment for us was aged inventory sits on a P&L as aged inventory. Like you got to do something with that. It's a sitting there. But returns are written off the balance sheet. And so it's almost like it disappears. Well, how then should a small business owner plan for that? Think about it. Yeah. So I think for a small business owner, I think trying to resell them, you know, like how are you going to be able to on a small scale? I mean, obviously, if you're getting millions of returns, that's now a massive scale. You need a solution like Rebel. But on a small scale, like what can you be doing with these products within your own ecosystem? Do you put them into the clearance section on your site? Are you are you selling them off at a warehouse sale? Like, what are you doing with these products? But I also think relooking at like the reason for all of these returns is because of the return policies. And there's a lot of benefits from a really great return policy on the regular price side of the retail industry. A really great return policy creates customer loyalty. It drives foot traffic. Usually when somebody comes back to return something, they end up walking around the store and they buy triple the amount than what they got back from that return. So there's a huge amount of benefit. It's a it's a very positive touch point for a retailer to have with a consumer. I feel like we could do a whole conference on the critical nature of returns. Yeah, like it's important. If it's 20 percent, well, number one, that's crazy. Two, I never thought of it as upselling, by the way. Amazing. And then your customer loyalty. This is this is I'm blown away right now. This is so interesting to me. So a really great return policy is a fundamental, it's it's part of the ecosystem of a healthy retention. It's a retention tactic as well. Wow. So that's why it's kind of viewed as like returns are a cost of doing business. And I really want you to write a book on this. Because I'm obsessed with returns. No, every business owner should really be strategizing around this. And I think all of us business owners think about the sale. Yeah. Not not the loop. I mean, this is so fascinating. I'm obsessed. I'm obsessed. This is so interesting. So coming full circle around it, let's then because like I said, I think you could write a 500 page book on this. But three tips to business owners thinking about returns. So I think first, educate yourself on like, what is your return rate? Relooking at your return policy, is this something is the policy that we have in place benefiting our business overall? Or is it causing challenges in the business? And then I think being open to creative ways of what are you doing with this inventory? I mean, we work with small brands as well as mass retailers. I talk about the mass retailers just because the volumes are so large. But we have many, many direct from brand and direct to store relationships where we're taking on their returns and we're able to reprocess them and then pay them new revenue. Wow. So incredible. Well, I'm a big fan. I've learned so much today. And I want to just thank you again for what you're doing for our environment. I mean, even outside this great business model. And thanks for coming on The Big Idea. You're awesome. Thank you. At the end of each episode, I like to give a shout out to a small business who is doing amazing work. Today, I'd like to shout out one of Emily's favorites, Oh My Mahjong. As a longtime fan of the game, Megan Trottier created Oh My Mahjong in her garage during the COVID-19 pandemic, and her business has flourished ever since. Today, her unique Mahjong tiles and mats can be now found online in over 1,500 stores. You can check them out at OhMyMahjong.com. Thank you to Emily for coming on the show. And thank all of you for joining us. We hope you've learned a lot. This has been The Big Idea from Yahoo Finance. Please make sure to scan the QR code below to follow Yahoo Finance podcast or check us out at The Big Idea wherever you get your podcasts. You can also come say hi to me at any of my social channels at Elizabeth Gore USA. I'm Elizabeth Gore. And as my grandmother always used to say, hold your head up high and give them hell. See you next time. This content was not intended to be financial advice. And should not be used as a substitute for professional financial services.