As the retail industry grapples with rising returns and logistical expenses, Toronto-based Frate Returns has emerged as a disruptor, bringing an AI-driven approach to returns management that aims to streamline processes and curb costs.
Launched in 2022 by former Division One hockey player and Ivey Business School graduate Bailey Newton, the company’s CEO, Frate’s innovative software solution tackles one of the biggest pain points in retail: the rising cost and complexity of handling returns. This cutting-edge approach, which uses AI to assess returns at the customer’s location, is designed to ease burdens on retailers and enhance the customer experience.
In a recent conversation, Newton shared the inspiration behind Frate. “The idea came about in a very real, personal way,” he says, describing how he observed his mother’s shopping habits during the pandemic. “She, like so many others, was ordering multiple sizes or colours of items, knowing she’d return most of them. At one point, her home practically turned into a small warehouse. It made me realize how inefficient and costly the returns process can be for retailers.”
The Pandemic Shift: Retail Returns Surge
The pandemic fueled a surge in online shopping and, consequently, returns. A study by the National Retail Federation reported that the volume of returns increased by 16.6% in 2022, costing retailers nearly $761 billion in lost sales. Traditional return processes, in which every returned item is shipped back to a warehouse for evaluation, adds further costs and complexity.
“What we saw during the pandemic was really a shift in customer behavior,” explains Newton. “Everyone’s home became a fitting room, and with that came an enormous increase in returns. But the standard return model is costly and outdated. Warehouses are filling up with returned items that haven’t even been inspected yet, and brands are paying each time an item travels back and forth. It’s a logistics nightmare.”
Newton’s idea for Frate was to reimagine this entire process. “The goal was simple: create a solution that minimizes costs for retailers while keeping returns convenient for consumers,” he explains. To achieve this, Frate built a comprehensive returns management system, complete with a returns portal that integrates into a brand’s website and a sophisticated AI feature that assesses the condition of returned items via uploaded customer images.
A New Model: Return Quality Control at the Customer’s Doorstep
With Frate’s software, customers begin a return by entering their order number on a brand’s online return portal, selecting their reason for return, and uploading images of the item. Frate’s AI then analyzes these images, categorizing items as “perfect,” “good,” or “poor” condition, based on criteria tailored to each brand’s specifications. By allowing brands to evaluate items remotely, Frate enables more efficient handling of returns, avoiding costly warehouse inspections for high-quality items and reducing inventory holding costs.
“Bringing the quality control process upstream was a game-changer,” Newton explains. “Instead of shipping everything back to a warehouse, we’re able to route items based on their condition. Perfect condition? It can be resold to another customer, potentially without even leaving the consumer’s home. Good condition? It could go straight to a liquidation centre, bypassing traditional channels. It’s a new way to think about returns that’s both cost-effective and sustainable.”
Preventing Return Fraud and Wardrobing
Frate’s approach also addresses one of the industry’s growing issues: return fraud. A common tactic, known as “wardrobing,” occurs when customers wear items and then return them as if they’re new, expecting a full refund. This practice has been especially prevalent in fast fashion, where customers may buy multiple items, wear them once, and then return them. Frate’s image-based verification system helps detect such cases, allowing brands to make more informed return decisions.
“We’ve seen an increasing number of brands turning to Frate for this exact reason,” says Newton. “Fraudulent returns can eat away at profits, and it’s a big problem for brands who are trying to offer flexible return policies while protecting their bottom line. Our software can flag these items based on wear indicators, helping brands save on costs without negatively impacting honest customers.”
Frate’s software empowers retailers to decline returns that don’t meet quality standards. “It’s all about creating a fair process,” Newton notes. “If an item comes back in poor condition, brands now have the tools to make a justified decision. And in cases of return fraud, they’re not automatically taking the loss.”
Expanding Partnerships Across North America and Europe
Frate is already making an impact in Canada, the U.S., and the U.K., with clients that include Toronto-based brands like Peace Collective, as well as major international names like Schutz and Club L London. These brands have embraced Frate’s technology to reduce costs associated with traditional returns, allowing them to streamline operations and avoid unnecessary restocking.
“Frate is a fantastic partner,” says the CEO of Peace Collective, one of Frate’s early clients. “With their software, we’re able to make returns more efficient while focusing on reselling items that are still in top condition. The difference in our cost savings has been substantial.”
Newton explains that Frate’s appeal lies not only in its technology but also in the benefits to the bottom line. “The savings brands are seeing from this process are significant. We’re talking about reduced shipping costs, reduced storage costs, and, most importantly, better inventory management. It’s about bringing sustainability to the forefront in a way that makes sense financially.”
Future Plans and a Growing Market
Newton sees tremendous potential for Frate as retailers shift toward a more sustainable approach to returns. The company is currently exploring new features, such as expanding AI capabilities to provide even more detailed quality assessments. “We’re looking to add even more refinement to our AI model, so brands have an even clearer picture of an item’s condition,” he says. “The goal is to keep evolving and add as much value as possible.”
With returns management now representing a sizable expense for retailers, Frate’s model aligns with current retail trends toward cost efficiency and sustainable practices. A recent study by the University of Arizona found that unsold or returned inventory can cost brands anywhere from 5% to 10% of their revenue. By keeping more items in circulation and reducing the back-and-forth in shipping, Frate’s platform helps brands mitigate these costs.
In the future, Newton envisions Frate continuing to innovate in returns management, potentially expanding into other areas of retail logistics. “There’s so much we can do with this technology,” he says. “Right now, we’re focused on returns, but I see Frate evolving as a broader solution for retail logistics. Our mission is to make the entire ecosystem more efficient and customer-friendly.”
As Frate builds its reputation and expands its partnerships, Newton is optimistic about what lies ahead. “We’re just getting started,” he says. “Frate is about more than just returns; it’s about rethinking logistics and creating a more sustainable, streamlined system that benefits everyone.”
With its groundbreaking approach, Frate is poised to reshape the returns landscape, saving retailers money, reducing waste, and improving the customer experience — all while paving the way for a new era in retail logistics.
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