Founded earlier this year by a recent business school graduate, Toronto-based startup Frate is on a mission to “reinvent returns for the betterment of the planet.”

The lofty goal has seen Frate recently raise $1.96 million CAD ($1.45 million USD) in pre-seed funding.

Returns are a sizeable problem in the e-commerce industry. As online shopping has increased significantly in recent years, the number and costs of returns have risen, which is leading to increasingly negative impacts on both bottom lines and the environment.

“The status quo returns process…is both very costly for retailers and very environmentally damaging.”

Frate’s pre-seed round was led by 2048 Ventures, and included Matchstick Ventures, MergeLane, Convoi Ventures, and other undisclosed strategic investors.

Frate offers what it calls peer-to-peer returns. Its platform allows retailers to ship returns directly from one customer to another. That means, rather than the customer shipping back products direct to the retailer, they hold the return at home and the retailer re-lists the item for sale. When that re-listed item is purchased by another customer, the initial customer is able to mail it directly to that person.

“The status quo returns process, as we all know it, is both very costly for retailers and very environmentally damaging,” Frate founder and CEO Bailey Newton told BetaKit in an interview. He argued that Frate’s platform makes returns more cost-efficient for retailers and more environmentally friendly.

“[The typical] returns process before that item is actually ready to be resold, you’re talking, it could be over 30 dates sometimes,” Newton added. “But with us, we’re basically putting that item directly back in the lifecycle as soon as they request that return. We say that we turn customers’ houses into warehouses, and also fulfillment centers.”

As online sales have increased since the onset of COVID-19, so have returns. A study of the United States from the beginning of this year found that retail returns jumped to an average of 16.6 percent in 2021 versus 10.6 percent the year prior.

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This has led to increased costs for retailers. According to another American study from earlier this year, online returns cost retailers an average 21 percent of the order value, and retailers are also facing e-commerce return rates that are at historic highs. This has led to a number of companies turning away from free-return policies and starting to charge consumers return fees.

The compounding fees for retailers and consumers come on top of the fact that the process is not environmentally friendly.

The problems in the online retail market have led startups like Frate to try and find new solutions. In Canada, Ontario Teachers’ Pension Plan and Cadillac Fairview-backed ReturnBear collates returns from multiple retailers in one place through package-free drop-off locations.

A number of companies have also created Shopify-specific solutions, such as PayPal-owned Happy Returns and United States-based Loop, which is used by Knix and Allbirds. Frate is also currently focused on the Shopify marketplace.

Frate differs from other return companies with its peer-to-peer model, and focus on sustainability. However, it is not the first company to offer peer-to-peer returns. United States-based Greenlist has a similar model.

“The difference of what we’re doing [is] we handle the entire returns process,” said Newton. “So we almost control that supply and demand aspect; we push people to hold on to their items, and then we also push people to buy the items.”

Frate is still in its early stages, with a beta product that is currently being used by Canadian retailers that include sustainable clothing brand Good For Sunday. Newton said Frate plans to fully launch its platform more broadly in the new year.

Newton started Frate after a business school project where he studied H&M being accused of greenwashing led him to “get hooked,” as he called it, on returns. After graduating from Western University, Newton started working on Frate full-time.

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While the peer-to-peer returns model might help solve retailer costs and improve sustainability, it also raises some questions. These questions include how to ensure people’s privacy when it comes to things like sharing shipping addresses, and ensuring the quality of returned items.

Newton said Frate is very conscious of both of these issues. The company uses QR codes to create shipping labels and no consumer names are ever shared with individual people. The system also attempts to solve for items being shipped to new customers in bad condition by requiring returnees to share images of the item, for example.

Newton argued that Frate has a sizeable opportunity before it because consumers are looking for easier and more sustainable return policies, while retailers want to cut costs.

“There’s a sustainability mission to what we’re doing, but at the end of the day, this makes sense for retailers because it saves them money,” Newton said.

Feature image source Burst.

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