Ep. 14: Reuse Realism with Mike Newman, Founder and CEO of Returnity

Featuring Mike Newman, founder and CEO of Returnity Innovations, a partner to retailers and brands for reusable packaging, in this episode we speak with Mike about his venture and lessons he’s learned. With a blend of entrepreneurship as well as environmental science and policy experience, Mike has a practical view of the immediate impact that reuse can have in commerce.

You’ll learn about some of the reasons that the internal logistics leg is one of the most viable places for reusable packaging in commerce today, and some of the challenges and barriers and opportunities and what would have to be true for reuse to be economically and operationally viable in some of the other consumer-facing areas that we continue to see interest and innovation.

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Transcript

Keith Anderson: Welcome to Decarbonizing Commerce, where we explore what’s new, interesting, and actionable at the intersection of climate innovation and commerce. I’m your host, Keith Anderson, and together we’ll meet entrepreneurs and innovators reinventing retail, e-commerce, and consumer products through the lenses of low carbon and commercial viability. 

Welcome to the Decarbonizing Commerce podcast. I’m Keith Anderson. And today I’ve got Mike Newman, founder and CEO of Returnity Innovations, a partner to retailers and brands for reusable packaging, mostly in the internal logistics leg of the supply chain. And I don’t think we were recording when Mike told me he’s sometimes referred to as the ‘reuse realist.’

And having spoken to him for a while, I can appreciate why. Mike’s background is, a blend of entrepreneurship as well as, environmental science and policy experience. And that’s one reason that I think he’s got a realistic view of the impact that reuse can have in commerce, but I think.

Another reason is the, the part of the supply chain that he is most focused on, and where he’s guided returnity. And as, as you listen, I think you’ll, you’ll learn as I did about some of the reasons that, the internal logistics leg is one of the most viable places for reusable packaging, in commerce today, and some of the challenges and barriers and opportunities and what would have to be true for reuse to be, economically and operationally viable in some of the other consumer facing areas that we continue to see interest and innovation.

So, here’s Mike Newman, founder and CEO of Returnity Innovations. 

Mike, good to see you. Thanks for joining the Decarbonizing Commerce podcast.

Mike Newman: Great to be here. Thanks for having me.

Keith Anderson: Why don’t you tell us a bit about Returnity and where it fits in the reusable packaging landscape?

Mike Newman: Well, Returnity really helps brands and retailers to reduce the impact of their packaging, certainly from a sustainability standpoint, less material and less waste, but also, more operationally efficient and ideally and ultimately less expensive. Usually what we focus on is what would be called secondary packaging.

So it’s the packaging that the brand uses to get the thing to the customer, shipping boxes, reusable shopping bags, and the like, and they’re really just innovating on how to implement those in a way that can work on all levels for the retailer.

Keith Anderson: And how did you end up in this business?

Mike Newman: Well, my background has been in sustainability and growth companies. I’ve always had a passion for the space. I did an environmental policy degree as an undergrad. I spent five years at the Sierra Club as part of their D.C. lobbying and legislative team. And then for the last 20 years, just working on supply chain and logistics.

Returnity actually had a bit of an atypical origin story. It was originally a reasonable shopping bag business. Just making shopping bags for companies primarily to use as like swag at corporate shi at like conferences. And thredUp and James Reinhart, which has become this publicly traded huge company focused on apparel and sustainability, asked us if we could make them a reasonable shipping bag.

So it was actually his impetus, and he was the original investor, liked what we came up with as a reasonable bag for shipping, and here we are over seven years later now, keep, keeping on innovating in the space, but it, it actually was his first, request that sent us on this journey.

Keith Anderson: Some of the most interesting businesses come directly from a customer request, and sounds like this was a pretty interesting one.

Mike Newman: Yeah, I love, you know, you, you love that sort of, “I don’t know, but let me try” and, that, “I don’t know, let me try” moment led us down this path that’s been really quite fulfilling. So, we, we, every time I see him, I remind him that, it’s all, it’s all that one ask that he had and how much we appreciate it.

Keith Anderson: So secondary packaging covers, both, I guess, customer facing, you know, direct to consumer or even indirect e-commerce, but I suppose also internal logistics.

Mike Newman: Yeah, that behind the scenes is, is, obviously not something consumers will see, generally, but it’s an enormous amount of packaging use. In the U. S. we use enough cardboard boxes to pave a cardboard road from New York to L. A. and back three times a year, so, you, it’s a shocking amount of cardboard, and just what’s used to get goods to stores alone, is billions of, of dollars worth of packaging, so.

It all adds up, what, what every leg of the supply chain, you’re, you’re seeing packaging being used.

Keith Anderson: And are you seeing any, any split in interest or demand among retailers and brands that you work with, are they responding more to consumer interest and want shoppers to be able to see something, or is just a pure operational efficiency play in the internal side where the action is?

Mike Newman: I think it’s been an evolution. Certainly they, they’re aware that consumers have a sort of broad frustration with packaging so that, you know, if you poll consumers and say, “are you, do you prioritize brands that offer more sustainable packaging options? Will you spend more on more sustainable packaging options?”

The consensus, and growing consensus is, ‘yes,’ that’s a, that’s nice in a poll. In practice, I think, the evidence is much more, wanting. So brands are having to, like, confront this duality of, expectations from their end customers of what, you know, how they’re addressing sustainability issues, but not necessarily taking personal action as individuals.

And so figuring out solutions that can kind of align to that, but still make sense economically has definitely been a journey. And then our ability to support them through that has evolved too to figure out, you know, what’s the right path.

Keith Anderson: Well, I know you’re going to help me unpack these topics much more reusable packaging, really, I think of two challenges in a sense. One is the economic side, which you mentioned, which don’t get me wrong, I’m not saying it’s by definition a challenge. It’s just a different economic model than single use.

And the other is sort of the behavioral side. So I’d love maybe to take those one at a time and potentially, in each of those different contexts, that is, on the consumer side and on the internal side, you know, in your experience, how are each of those stakeholders, approaching reusable packaging, at least as you’re delivering it?

Mike Newman: Well, I think that the, there’s a lot of flirtation with reusables for e-commerce over the last five years, and those have largely, kind of tailed off for the reason that it just doesn’t work, frankly. It,

Keith Anderson: Why doesn’t it work?

Mike Newman: Yeah, it’s a, you know, there’s isolated cases, like, you know, clients like Rent the Runway, rental brands, things like that, where it’s going to come back, because that’s part of the business model.

But that’s, few and far between. In an open context e-commerce setting, you really need to get 75, 80%, ideally 90% of the packaging returned from the end customer to make it work environmentally, let alone economically. The evidence is, is that generally it’s going to be about 50 percent or less of consumers will return it, even If they opted in at checkout, even if they paid a premium, which some, some companies have tried, you’re still just not going to get it back enough.

So, on top of all the challenges for an e-commerce brand, now I have to have paper or cardboard and the reusable, and I got to train my team to remember which stock to pull from, depending on what the customer, it just creates a lot of challenges. And given that it’s more expensive and you’re not going to get it back enough, unfortunately, it’s just not really proven viable in that context.

So, you know, brands have just learned that, you know, as they all know, it’s very hard to change consumer behavior, particularly at scale. To do it as an individual company is almost impossible. These are sort of society-level evolutions that we need to be thinking about. And so, putting it in a reusable to ship you your order is not victory.

Victory comes when it keeps getting reused. It just doesn’t happen right now. So, they’ve had to look at other applications where reusables can actually be viable. Today, and, and fortunately, you know, we, that’s been a challenge for us too as a business to make sure we have, have, a growth and a future.

And fortunately, we’ve been able to find those applications, but they tend to be internal logistics, employee or employee-managed processes rather than, than consumer behavior driven.

Keith Anderson: Yeah, in the past life, I used to say, “it’s a lot easier to get people to use what we’re making when we’re paying them as employees than if we’re asking them to pay us as customers.” And it’s an interesting point in terms of adoption and viability. If what you’re really doing is reengineering an internal workflow, you know, and it is part of your training and can be measured as a KPI, it’s a lot different than something you’re asking a busy household to handle.

Mike Newman: That’s right. And you know, if you ask people how they feel about packaging, they’ll tell you, “I don’t like packaging,” but people don’t interact with packaging, like this broad concept that they individually, they impact, interact with a package and then another package, another package, they’re busy, you know, the, the kid needs a diaper change, they got to run to work.

It’s very hard to expect consumers to really profoundly change how they interact with every individual package at every moment. It doesn’t mean we shouldn’t consider that as an important evolution as we look at our impact as a society. But look, I got to run a business that makes money today and that serves my clients.

And today consumers just aren’t ready for this, no matter what they might respond to in a poll. So you have to adapt and, and, and adjust.

Keith Anderson: So, you said something interesting, which is, you know, putting something in a reusable package isn’t the, the win, it’s hitting the reuse rates. How do you define success in the context that your, that your business has sort of gravitated towards?

Mike Newman: Well, I think that, you know, we use these three pillars of economic, operational, environmental, the environmental it’s contextual, you know, what are you replacing and what are you replacing it with? How far is it being driven between locations and things of that nature? But generally, as long as you can get the reuse rate up above 90%, every life cycle assessment and study that’s ever been done, you know, private or, or there’s a number of them out there that are public show that it, it creates a profound environmental benefit. So, not having to keep making new packaging when you can keep it in circulation 10 to 20 cycles is clearly better from a climate standpoint, water use and so forth. So then it just comes down to like, you know, does it work economically and can your operation absorb it? And so, it has to work on all three.

We look for those cycles and those segments where we know the circulation rate is viable and possible, and then make sure that we’re designing the system and the package so that it does become cost efficient. You know, you got to use it. It’s reusable. It’s going to be more expensive to manufacture up front, but over time, you know, you’ll start to benefit. And our pitch to retailers and brands is we’re only going to do this.

We’ve learned we should only pitch you if it’s going to save you money. So, you know, can we go in and say, “look, you’re wasting money on single use. You’re going to save money when you switch to reusables.” Or when you didn’t have a choice, because regulations or sometimes C suite, directives forced you into reusables, but, companies are just not going to switch to reusable unless it’s economically viable.

And generally they’re not going to do it unless it’s cheaper. Because they don’t do anything unless it’s cheaper. That’s the whole point, is, you’re trying to optimize your business. So, we have to find those segments where it’s going to save you money, really.

Keith Anderson: And is that sort of long term payback something you find, everybody understands and is, is willing to come with you on that journey for, or are they just used to unit economics that are, listen, the cost of single use per unit is so low that it’s easier just to keep doing what we’re doing?

Mike Newman: It’s usually not that hard to get a first meeting. But, sustain… because, like I said, it’s packaging, spend, and impact, it’s, there’s a lot of attention to it right now. So, you know, I think companies are really aware that they need to show progress, not just for the optics of it, but these are humans who read the climate news too.

It’s not, you know, that, and it’s not like it’s the sustainability team that’s like dragging the purchasing department around. Like we’re finding that the purchasing group is also open to the conversation, but the realities of the implementation challenges can’t be overlooked. And, you know, a very common thing, for example, is

if we are implementing reasonable packaging for, say, a retailer, and they’re using it from their, you know, shipping from their warehouse to their stores, the team that manages that leg has their own P&L and their own budget, and then the store team has their own budget. And what our companies who use us have learned is that they save a lot of labor in the store because our boxes are a lot more efficient to open up and break down and the retail team doesn’t have to spend nearly as much time in the store just opening boxes and taking out merchandise.

So they get this labor savings, but that’s usually on the retail team’s budget, not on the logistics team budget. So the logistics team has a budget for cardboard. And we say, well, look, here’s one of the really compelling reasons to switch. And they’re like, well, that’s not my budget. I’m not going to get credit for that.

That goes on the other guy’s budget. So those are the real, I mean, that’s the real nuts and bolts of it. You have to, you know, you have to understand and address those things straight on. And that’s where a lot of this stuff either moves faster, moves slow, is that just day to day challenges of individuals in large companies.

And what they manage and control and what their personal impact from taking on that project might look like. And sometimes it’s maybe not compelling enough for them in their seat and you have to figure out a way to move past that.

Keith Anderson: I was smiling because in my past life consulting, we worked with a lot of retailers that were early in the omni-channel evolution, and were starting to offer things like fulfilled from store, order online, pick up in store, and the exact same dynamic was a big part of it. Their labor was going to be used to pick and pack the order.

But the online team got all of the credit for the sale. And so there was a lot of internal tension for years about how do we incentivize people just to do the right thing for the business and the customer. And then, you know, we don’t want them working against their own comp model, but our current comp model doesn’t incentivize the desired behavior.

So it is interesting though, again, because to all the good points we’ve made about consumers, you can influence behavior in an organization through a lot of those, you know, how you define and measure success and, you know, what you’re incentivized and compensated to do.

Mike Newman: Yeah. And at the end of the day, everyone likes being a hero because they save money for their company. So. You know, leading with that is usually a good place to start, and we’ve been doing it long enough now to kind of be able to identify where are those, those cycles within the logistics of a brand that we can create, you know, hero moments for them.

And, and so when, when you have that, you have that product market fit and can just really lean in hard on selling it there. That’s, that’s when you’re feeling good and, you know, it only took us seven years, so, yeah, but here we are, so.

Keith Anderson: So, looking at some of the clients that you list on your website, I, I see some patterns, but where have you found that density of, demand or a good fit? Does it, does it? Is it stuck in a certain profile of product category, you know, how would you just characterize where you see the pattern of interest?

Mike Newman: Yeah, I think today, it’s sort of settled in most prominently in two use models. One is that internal logistics kind of warehouse to store or store or the reverse, for product returns. And generally for apparel and shoes, I mean, those are high volume product categories, obviously, they don’t need a lot of specialized packaging, usually they tend to just use the same size cardboard box over and over again. It kind of lends itself to a first adoption. It’s a lot harder. We work with Target and Walmart and others, but they sell everything ever made anywhere. And so that’s its own logistics challenge of if it’s a bicycle or a snowblower or a you know, a bottle of Coke, like, it’s a little bit harder not to crack from an op standpoint.

Today it’s mostly shoes and apparel for that reason, though, you know, we have examples otherwise. And just set a cardboard, it’s going back and forth, and reusables, and they can keep it in circulation and save money. The other application is, frankly, reusable grocery bags, because single use grocery bags are getting banned, which is often a good thing, but can have these knock off impacts that still are a challenge, so, you know, instead of getting a really thin, single use plastic bag, people are using dozens, hundreds a year of reusable shopping bags that they don’t reuse, which are more plastic, so they’re sort of consuming more plastic in these reusables than they were in single use and now retailers are having to kind of figure that out. And that’s where, you know, we’re, we’ve been stepping in to kind of create these loops and reuse cycles that can allow it to, to make some sense.

Keith Anderson: And, and did you participate in the Closed Loop Partners initiative on that front? Am I remembering that right?

Mike Newman: We’ve done a couple of different projects with them. Yes. A project through them with Walmart and, and one just this past year with CVS and Target and, all around that. And, and obviously, you know, look, it’s happening at the same time that. In store retail, particularly for grocery, has been evolving so much as well because now you have, obviously, you have in store shopping like you always did, but then you have people buying online and driving up into a parking spot to get their order brought to their car, and you have home delivery through, Instacart and other vendors.

So, there’s all these different customer journeys that are happening for the retailers, and the absence of single use shopping bags only complicates those journeys. And so, I like to say that packaging, reasonable packaging, becomes both an enable, enabled by and an enabler of a lot of this evolution in retail because you have this tool.

You got to give them, particularly if they’re pre-buying it, you have to transfer it to the customer somehow. You’re giving it to them in something. It’s no longer a single use shopping bag, so how are you dealing with that? That’s an example of that segment I said where, companies are being forced into reuse whether it made sense or not economically and operationally and environmentally.

Oh well, you know, that’s the reality like in New Jersey. No single use shopping bags, period. Not even paper, since last May. So you gotta do something. So that’s where we’re coming in to help those brands and others to sort of implement reuse systems that can, that can work within that constraint.

Keith Anderson: Yeah, got it. So, just stepping back to apparel and footwear, you know, if I can observe a couple characteristics, just to echo a little bit of what I heard you say, those are obviously non perishable, solid products, so they’re not going to leak, they’re not going to spoil, they don’t need a lot of secondary packaging, higher price point than the bottle of coke that you referenced. Do you see other categories with similar characteristics that may also have potential?

Mike Newman: I mean, really, you just need just, but you really, well, you need two things for reusables. You have to get them back a lot and you have to get them back cheap. And so cheap is never one at a time. You know, that’s the big problem with a lot of those e-commerce models is that I’m buying a pair of jeans.

It’s sent to me in a reusable. I’m mailing you back one reusable package at a time. Very expensive. And also, as we touched on, consumers just won’t do it enough anyways. But anyway, they did. It’s, it’s, I’m taking a 20 cent poly mailer bag or a dollar cardboard box and I’m replacing it with an asset, a reasonable package, and I’m paying UPS three or four bucks to get the thing back.

It’s just way more expensive. So, you have to be able to get them back in bulk, and you have to get them back a lot. And retail footprint creates a lot of attractive opportunities for that. If it’s an employee managed process, they’re taking all the empties and putting them all together and sending them back at once.

So the cost is really reasonable. And then like those reasonable shopping bag programs and similar, they’re being returned to the store. So now you’re having this consumer-led re-aggregation. You can bring it back in bulk. And so it’s, it’s actually less important what the thing is that’s being shipped and what kind of package.

We’ve done wine. We have reasonable wine box that we’ve done, for a company in Europe. Certainly electronics and others, you know, the, the box works. It’s the, it’s that logistic system that has to underlie everything.

Keith Anderson: Yeah, as you’re talking I’m thinking of all these programs that I’ve seen piloted. And some have worked, some haven’t. Most of my focus has been in grocery and CPG, and you, you know, the value of the store in that logistics equation, I think is pretty profound. You know, one example was Loop by TerraCycle.

When I first participated in the pilot, it was a doorstep delivery program and it’s since evolved into, Brick and mortar only, integrated model. And I think a lot of what has been learned over decades of online grocery in general, in terms of the superior economics of having shoppers do a lot of the work versus having, you know, picking, packing, and delivery done by the retailer, it, it, it helps to have the store as a central point of logistics for the customers and the, the operator.

Mike Newman: Yeah, it’s just, you know, this is the, the real, the real, it’s just math. It’s just, you know, like, at the, at the end of the day, it’s fun to work in a category on a product that has the potential for social value and reducing impact, but it only happens with scale and scale only happens if it’s a good business and it makes economic sense.

So those are the sort of building blocks of how you create scale and how you have economic success is logistics are expensive. You got to figure out your way through that. And, and having a consumer play a part is, has been one important strategy.

Keith Anderson: Are there other things that you can do to increase the, number of circulations? Is traceability a big part of this? Are, are you, you know, do you track individual assets and say, “hey, we actually know where it is,” is that, does that pay back?

Mike Newman: Somewhat. It has to be the icing, though. It can’t be the cake. So, that kind of stuff like data and tracking, is, I think the instinct of a lot of reuse companies has been, well, the basic model isn’t cost effective today, so, we’re going to create other sources of value like through data. And it’s so you’re over, you’re just adding complications and layers to the process.

And, if the, and that’s usually not a very good business strategy is like, “well, my basic thing doesn’t work. So let me make it more complicated and harder and more expensive. And then somehow I’m going to reach some point where I’m crossing a threshold and all of a sudden it’s victory.” I try and run in the exact opposite direction and say like, what is the dead simplest thing we can do here, to make this a viable approach?

You know, cardboard is dumb and cheap and easy, which is what makes cardboard really great. You know, it’s not like, so if I’m going to compete with dumb and cheap and easy, generally, I need to be dumb and cheap and easy. So like the base foundation for, I think, reuse needs to be like, “no, it just works because it works.”

Then you can layer in things like data and customer engagement and things like that, you know, ways of building a brand loyalty that just make it even that much better. They better be the icing. Otherwise, I think, you know, the evidence is pretty strong that it, it’s not sufficient to take a bad model and make it a good, it takes a good model and it makes it a better model when you have that in place.

So, and the other thing I would say is that if you have a really highly effective circular system in effect. The tracking becomes like a lot less important because they just stay in circulation. You don’t need to invest in a lot of active management of the asset because the asset is doing what it’s supposed to be doing.

So a good system negates the need for a lot of active management and that’s our goal because it’s cheaper. So in general, everything is individually barcoded. We have RFID packaging for some clients, etc. But that becomes sort of the fallback rather than, you know, the star of the show.

Keith Anderson: Fair enough. So what is it then that defines a functional efficient, you know, in the absence of those things, what sets you up for success?

Mike Newman: I, I think it, it is that, it’s a simple process that, you know, the, the users are trained on and then they just execute. And, um that’s true, certainly for the internal logistics, you know, clients like Vuori or Happy Returns that UPS just bought who use our packaging for the forward and back. You spend 10 minutes training them on what you do with the box, and then they just do it.

You know, and that’s that, and they keep going, and we have, you know, we have, with Happy Returns, we have boxes that we made for them three, four years ago that are still in circulation. And I know because I’ll go into one of their drop locations and I’ll see the box behind the counter and I can tell by the design that that’s one we made over three years ago for them because the designs have evolved and the branding’s evolved.

And so, and they don’t actively track each box and keep an eye on how many cycles it’s had, right? Because they’ve just learned it. They don’t have to. And on the consumer side, it’s similar, like with the reasonable shopping bag programs. The initial instinct was okay, “we need to have an app, and they’re going to download the app, and there’s going to be this whole thing, and they’re going to have a coupon, and they’re going to scan, and we’re going to scan the bag out, and we’re going to scan the bag in, and everyone’s going to know all the stuff,” and that just adds a lot of layers of, of, of cost and, and organization and training, and it doesn’t move the needle that much, you have to just align it to how consumers are living their lives, and they’re going to do the thing, they may do it less, and but the cost of implementing it is so much lower and the cost of running that program is so much lower that you’re, you’re ahead of the game compared to some profound behavior change app-driven Silicon Valley dream utopia future.

It just, it’s not generally going to pay off.

Keith Anderson: Even if there’s augmented reality involved?

Mike Newman: I know it’s a, well, the internal joke

Keith Anderson: What if it’s powered by AI?

Mike Newman: I had a joke with the, well, I had a joke with the team that I said, “I wonder how long it’ll be until somebody in the reuse community posts about how they’re implementing AI for their reuse.” And it was not even a day. I mean, that was the thing that was insane.

It was not even a day until I, someone saw someone posting how AI was somehow magically now going to make reuse work where it hasn’t. Good luck. That’s not, that’s not what I’m doing.

Keith Anderson: Yeah. I don’t want to take the conversation too far in that direction, but there’s, there’s always a buzzword that finds its way into pretty much every business model.

Mike Newman: Well, yeah, I mean, before we were, we had people asking us if we were using blockchain. So, yeah, it’s the same. It’s always something new. Yeah.

Keith Anderson: Hey folks, this is the part of the show where we say thank you and see you soon to the general audience, plus and higher tier members of Decarbonize.co, stay tuned for the rest of the episode.

Well, this has been fantastic. If folks want to learn more about Returnity or get in touch with you, where would you send them?

Mike Newman: We’d love for people to check out our site. It’s returnity.co. You can email us through there and reach out. You know, I’d love to, love to chat about anyone interested in the space. And yeah, thanks for all the great questions.

Keith Anderson: Thanks again. 

Thanks for listening. I’m Keith Anderson, the executive producer and host of Decarbonizing Commerce. Sonic Futures handles audio, music, and video production. If you enjoyed the show, we’d really appreciate it if you took a moment to subscribe and leave a review or share it with a colleague. For the full episode and more member exclusive insight and analysis, join the Decarbonizing Commerce community at Decarbonize.co. Thanks for listening and we’ll see you on the next episode of Decarbonizing Commerce.

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