As online shopping booms, so too has the problem of merchandise returns that end up in landfills or get sold in bulk for pennies on the dollar.
It’s a market failure that’s presented opportunity for some entrepreneurs. Among them: Emily Hosie, the founder and CEO of Rebelstork, a Toronto-based startup that seeks to help the environment and consumer brands, while building a meaningful business of its own in the process.
Rebelstork’s online marketplace sells overstock items as well as returned baby gear at discount prices — a business it says is growing 300% year-on-year. On the backend, the company has built technology to streamline the flow of returned merchandise from a brand or retailer into the startup’s own warehouses, as well as a system to tag each product so brands have visibility into where their products end up.
The four-year-old company, which works with retailers like Target and brands like BabyBjörn, has raised $18 million to expand its operations from backers including the investments funds of Serena Williams and Jay-Z.
Hosie knows the off-price retail sector well. She was previously a merchandising executive at the parent company of TJ Maxx and Marshalls, as well as Saks OFF 5th, which typically sell excess branded goods that were overproduced or sat unsold on another store’s shelves. When she was preparing for the birth of her first child in the late 2010s , she says she dug deeper into how returned goods are dealt with in the baby industry, and why.
Why don’t most brands and retailers just sell their returned baby goods themselves, especially if just the box has been opened but the merchandise hasn’t been used? Hosie said a variety of logistical, operational and strategic factors play a role. Some retailers and brands already have a supply chain set up that funnels return items to liquidators or waste-processing centers, while others don’t have the resources or know-how to handle the quality checks necessary to resell the merchandise. Many also don’t have their own discount outlets through which they can sell the used goods directly and don’t want to put them back on their own shelves next to full-priced goods.
The National Retail Federation said $743 billion of merchandise was returned last year. Baby gear accounts for nearly $16 billion of that total, Rebelstork says.
“Returns are a crisis and I feel like people don’t fully realize how big returns are, what’s causing them and how there’s no solution to tone them down,” Hosie told Fortune. “Because you need good return policies to drive loyalty, you need good return policies to drive foot traffic. There’s all these reasons why there are lenient, great return policies and that’s awesome. But there’s this backlash and that’s okay too, because there’s solutions like us.”
Rebelstork hopes to solve those issues by ingesting returned goods into one of its four North America warehouses by the truckload, tagging and checking them for quality and safety, and then using its own AI-powered tool to price each good before listing it for sale on its own website.
For online shoppers, the site offers a wide selection of popular baby brands across 45 categories, and with discounts that run as high as 50%. Items are marked with one of three labels: “overstock,” which means the item was returned but never opened; “open-box,” which means it was returned and opened but never used; or “quality used,” which essentially means the item might have a scuff or another mark indicating light use, but nothing major. Rebelstork shares a percentage of revenue with its partner retailer or brands, but declined to disclose how much.
The Series A round was led by consumer-focused investor Maveron Ventures and its chief investment officer Jason Stoffer. Maveron’s past investments include Zulily, General Assembly, Everlane, and Dolls Kill. Beth Ferreira, formerly of FirstMark, led a new investment from Serena Williams’ fund Serena Ventures as well. Jay-Z’s Marcy Venture Partners, as well as previous backer Golden Ventures, also joined the round. The investment values the company at $60 million post-money, according to a source familiar with the deal.
Even as some shopping trends on apps like Shein, Temu and TikTok Shop favor fast-fashion and the purchase of disposable goods, Hosie said Rebelstork has benefitted from a generational shift where millennials and Gen Z are more willing to buy pre-owned merchandise if the quality and price are right.
“I think when parents are finding out they’re becoming parents they’re thinking about, “What’s the world going to be like when my kids grow up?” Hosie said. “‘And if we can buy this amazing, high quality stroller that’s quality checked, never used, and save it from going into the landfill, we’re gonna do it and we’re gonna tell our friends about it too.’”
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