Try-before-you-buy trend could lead to "returns tsunami" for online retailers, study says

By

Robin Driver

Published
Mar 22, 2018

A report released by Brightpearl on Wednesday suggests that the introduction of try-before-you-buy services made popular by online apparel platforms such as Amazon's Prime Wardrobe, Trunk Club, Stitch Fix, Warby Parker, and ASOS, could spell disaster for unprepared e-commerce retailers, swamping them with returns and obliterating margins.

 
The “Try Before You Buy: A Returns Tsunami for Retail” report, which surveyed 200 retailers, ranging from independent to enterprise-level, and 4,000 consumers across the US and the UK in February 2018, found that 25% of retailers are planning to introduce online try-before-you-buy services by 2019. Many, however, are not prepared to deal with the associated increase in return costs, which could quadruple for retailers operating in the US, according to the study.
 
Try-before-you-buy services allow customers to order multiple items and only pay for those that they do not send back within a predefined period (often 30 days). The key advantage, compared to more traditional returns policies, is that shoppers do not have to wait for their returns to be processed to receive reimbursement. 

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Surveyed US shoppers said that they would purchase on average five extra items per month if offered a try-before-you-buy service, but 87% also stated they would return up to seven purchases. Furthermore, 85% of those surveyed expected returns made within a more traditional returns structure to be free.
 
These consumer attitudes and expectations would seem to be reflected by the experience of retailers, with over 40% claiming that they have seen an increase in “intentional returns” – where consumers buy a number of items because they know that returns are free or cheap – in the past year.
 
It should come as no surprise, then, that a recent National Retail Federation study found that total merchandise returns accounted for $351 billion in lost sales for US retailers in 2017.

Accordingly, 44% of retailers stated that their margins were being strongly impacted by having to handle and package returns, with another 70% expecting margins to be squeezed even further as try-before-you-buy services grow in popularity.
 
“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,” commented Gareth Austin Jones of footwear brand Cocorose London in a Brightpearl release. “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.”
 
Small and medium-sized businesses are expected to be hit hardest by shrinking margins, and 70% of companies surveyed in this category expressed concern about the impact of try-before-you-buy on their balance sheet.
 
“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,” stated Derek O’Carroll, Brightpearl CEO. “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.”
 
However, despite their concerns, it would appear that the vast majority of retailers are not making any moves to pre-emptively tackle the problem, with 69% of those surveyed claiming that they are not deploying any specific technological solutions to deal with returns.
 
As an increasing number of retailers are pushed to adopt try-before-you-buy services – or simply more flexible returns policies – by the competitive marketplace, the logistical and financial implications of such consumer benefits could lead to significant problems for smaller merchants. O’Carroll, however, is confident that, with the right preparation, companies will be able “to turn the returns tsunami into a tide of fresh profits.”
 
Brightpearl is a cloud-based ERP that works with retailers and wholesalers to implement back office automation.
 
The full “Try Before You Buy: A Returns Tsunami for Retail” report is available for download on Brightpearl’s website.