A new report released today highlights the hidden dangers to retail stemming from online businesses, such as Amazon’s new Prime Wardrobe, Trunk Club, Stitch Fix, Warby Parker, and ASOS, which have introduced Try Before You Buy (TBYB) options for customers. The trend is threatening to overwhelm retailers – many of which are already reaching crisis point – with a huge surge of intentional returns that may undermine profits.
The Brightpearl study, which reflects the opinions of 200 retailers and 4,000 consumers in the United States and UK, reveals that the growing trend will have a major impact on both purchase behavior and returns:
- 25% of retailers globally will adopt online TBYB by 2019, but the majority are unprepared for surge of returns that could QUADRUPLE return costs for US retailers
- US shoppers offered TBYB would purchase on average five extra items each month (but 87% would return up to seven purchases)
- 85% of consumers expect free returns
- 40+% of retailers have seen increased ‘intentional returns’ in the past year (customers ordering multiple items because returns are free or cheap)
- 44% of retailers agreed their margins are being strongly impacted by handling and packaging returns (70% say they will be squeezed further as TBYB intensifies)
- Small-and-medium-sized retailers are most at risk, with 70% worried that try-before-you-buy services will affect their business
- Almost two thirds of US retailers are not deploying technology solutions to process returns
The TBYB option enables customers to order multiple items before deciding what they’d like to keep. There is no up-front cost; shoppers simply pay for items they keep after a certain number of days – usually 30 days. They return unwanted items and are never charged. It means that customers can order and try items as they would in-store, but crucially, they do not have to wait for returns to be processed to receive reimbursement.
The study finds a staggering 69% of retailers are not deploying any technology solutions to process returns. This is despite the complexity of managing returns, with the average returned purchase passing through seven people before it’s listed for resale.
With total merchandise returns accounting for more than $351 billion in lost sales for US retailers (NRF), findings in Brightpearl’s study indicate that the TBYB trend will result in a surge of returns, with customers returning on average four items a month, and could at least quadruple return costs for many retailers if they continue to take no action.
High-growth and medium-sized businesses will be most exposed; 70% worry TBYB services will affect their business.
Derek O’Carroll, CEO of Brightpearl, explained, “For consumers, Try Before You Buy is a positive trend that removes another barrier to purchase. This will lead to an uplift in sales for retailers. However, it could spell disaster for business owners if they don’t have the right framework and solutions in place to manage returns. Consumers will buy more, but they could return an extra four items a month on average, potentially prompting an unmanageable tsunami of returns for some merchants.”
The study reveals shoppers also want faster returns processing. Three-to-five days is considered acceptable for processing returns, however, it currently takes an average of six days for consumers to receive reimbursement on returning items.
Gareth Austin Jones, of leading footwear brand Cocorose London, says, “When you consider handling, transport, admin and possible repacking, the costs of returning an item into your supply chain could be double that of delivering it. For retailers to capitalize on Try Before You Buy without cannibalizing margins, they need the right systems in place to optimize the returns process and ensure end-to-end visibility over factors such as available cash flow and inventory in the system – all of which could cause major pain points. If they don’t prepare now, the impact on return rates could devastate online retailers that are already seeing their margins considerably squeezed.”
“It’s not all bad news,” adds O’Carroll. “The fact that two-thirds of retailers still process returns ‘by hand’ shows that with the right preparation, and by exploiting relevant technology, forward-thinking merchants should be able to turn the returns tsunami into a tide of fresh profits.”