Retailers facing ‘returns tsunami’

A growing trend of try-now-pay-later options for customers is threatening a ‘returns tsunami’.

According to a new report released today by cloud-based ERP Brightpearl, the practices of companies such as ASOS, Topman and schuh have hidden dangers that could potentially overwhelm retailers as a huge surge of intentional returns may undermine profits.

The study, entitled Try Before You Buy: a returns tsunami for retail, reveals that the try-before-you-buy trend will have a major impact on both purchase behaviour and, of course, returns.

Over three quarters of consumers (76 per cent) surveyed said that they would ‘definitely’ or ‘maybe’ purchase more items if offered a try-before-you-buy option, with shoppers ordering on average three extra items each month, only to return them without ever paying a penny.

An even higher number (87 per cent) would return up to seven purchases – with research showing that 85 per cent of consumers expect retailers to provide returns for free.

This trend in consumer behaviour has not gone unnoticed. More than 40 per cent of retailers have seen a marked increase in ‘intentional returns’ over the past twelve months, when customers deliberately over-order multiple items knowing returns are free or cheap.

More than half (51 per cent) of the surveyed retailers agreed that their margins are being strongly impacted by the process of handling and packaging returns and 72 per cent believe they will be squeezed even further as the try-before-you-buy trend intensifies.

It would seem that the try-before-you-buy model is going nowhere soon, with 17 per cent of global retailers having already adopted it. The report predicts that by 2019, more than a quarter will offer this type of service to customers.

The study also revealed that a ‘staggering’ 69 per cent 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.

Returns already cost UK retailers £60 billion a year, and many retailers will see the cost of returns triple if they continue to take no action.

It’s not all doom and gloom for smaller, independent businesses though as high growth and medium-sized businesses will be the most exposed.  70 per cent worried that try-before-you-buy services will affect their profitability.

Derek O’Carroll, CEO of Brightpearl commented on the study’s findings: “For consumers, try-before-you-buy is a positive trend, removing another barrier to purchase.

“The good news for retailers is that this will almost certainly lead to an uplift in sales. Our study indicates that shoppers want the option to order items such as clothes online but only pay once they decide to keep them, so it’s something that all retailers will need to consider to remain competitive.

“However, this trend could spell disaster for retail business owners if they do not prepare by having the right framework and solutions in place to manage returns. And, they’ll need to do so quickly as the trend becomes more widely adopted over the next year.

“Consumers will buy more, but retailers must be ready for a potential flood of returns. With shoppers indicating that they could return an extra three items a month on average, it could spell an unmanageable tsunami of returns for some merchants.”

The study also revealed that beyond an expectation for free returns, shoppers also want their returns to be processed faster. It currently takes an average of six days for consumers to receive reimbursement on returning items, but the perceived acceptable time frame is only three to five days.

“When you consider all handling, transport, admin and possible repacking, the costs of returning an item into your supply chain could be double that of delivering it” said Gareth Austin Jones, of Cocorose London, a leading footwear brand based in the capital.

"For retailers to capitalise on try-before-you-buy without cannibalising margins, they must have the right systems in place to optimise 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.

“Returns has been a growing issue for retail, and this research reveals the faultline runs deeper than expected. If retailers don’t prepare now, the impact on return rates could cause devastation for online retailers who are already seeing their margins being squeezed considerably.”

O’Carrol added: “It is not all bad news; the fact that two thirds of retailers are still processing returns ‘by hand’ shows that with the right preparation, and by exploiting the relevant technology, forward-thinking merchants should be able to turn the tsunami into a tide of fresh profits.”

This report investigates the shifting consumer attitudes towards try-before-you-buy, juxtaposing these views with the observations of retailers. Working in partnership with OnePoll, Brightpearl canvassed the opinions of 200 retailers in the United States and the United Kingdom and the views of 4,000 consumers in these markets. Respondents represent a cross section of consumers alongside retailers ranging from independent to enterprise level. 

The full report is available for download at https://info.brightpearl.com/returns-tsunami-for-retail.