Retailers struggling with product return issues

PayPal (PYPL) recently led an $11 million investment in Happy Returns, a startup that helps retailers with the handling of product returns. Happy Returns operates over 350 outlets in locations such as malls and college campuses, where people can return the products they bought online.

Happy Returns has seen strong demand for its service with the rise of online shopping. According to the startup, items purchased online are up to four times more likely to be returned than items purchased at physical stores.

PayPal Invests in Retail Return Startup Happy Returns

Dealing with returns is a major challenge for online retailers, particularly those with a limited number of physical outlets or those without physical outlets at all. For example, Amazon (AMZN) has partnered with Kohl’s (KSS) to use its stores to receive products returned by its customers. Amazon operates a small number of physical stores compared to its traditional retail rivals Walmart (WMT) and Target (TGT).

PayPal sees opportunity in the retail returns challenge

While handling online returns poses a significant challenge for retailers, it also presents an opportunity, which is why PayPal has decided to invest in Happy Returns. PayPal says its investment in Happy Returns will go a long way toward reducing friction in the online shopping experience for retailers and their customers.

For PayPal, putting its money in Happy Returns sees it continuing to build its strategic investment portfolio. In the first quarter, a strategic investment in Latin American online shopping platform operator MercadoLibre (MELI) boosted PayPal’s EPS by $0.08. PayPal’s first-quarter EPS came in at $0.56. The company expects an EPS boost of $0.01 from its strategic investments in the second quarter.

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