Try-before-you-buy sends returns sky high

Fashion Show Mall
Try-before-you-buy is great for consumers but costly for retailers. (General Growth Properties, Inc.)

The boom of online retail has sprouted a trend of try-before-you-buy (TBYB) options for customers, especially in apparel. But this new option is threatening to overwhelm retailers' profits.

According to a new report from Brightpearl, which reflects opinions of both U.S. and U.K. shoppers, TBYB has an impact on purchase behavior and returns. 

The study reveals that one-quarter of global retailers will adopt TBYB by 2019, but many are not prepared for the fact that it could quadruple the costs for U.S. retailers. 

For example, if U.S. shoppers are offered TBYB, they buy an average five extra items a month and 87% would return up to seven purchases. That will likely come at the retailer's expense, as 85% of consumers expect to return for free. 

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As many as 40% of retailers have seen an increase in intentional returns in the past year and another 44% agree their margins are being strongly impacted by handling and packaging returns. Most at risk are the small- and medium-sized retailers, with as many as 70% worried about how TBYB will affect their business. Yet, almost two-thirds of U.S. retailers are not using technology solutions to process returns. 

“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," said Derek O’Carroll, CEO of Brightpearl. "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 also reveals that shoppers want their returns processed faster, between three to five days. Currently, it takes an average of six days for retailers to reimburse consumers. 

So in order to prepare for the additional TBYB offers, O'Carroll says that retailers need to understand their margins and the true cost of returns in order to know if this model will help their business and whether its a sustainable option. 

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"Businesses should also be looking at ways they might be able to recover margin, for example charging for delivery, or returns, as an increasing number of U.S. retailers are now doing (46%, up from 37% in 2017)," he told FierceRetail.

Still, he notes that this may not be the best solution, as 9 out of 10 consumers want free returns. Therefore, the onus should be on finding a solution that allows retailers to capitalize on this trend without punishing consumers. 

O'Carroll said that almost 70% of merchants are not deploying any technology solutions to process returns, exacerbating the cost and complexity of managing returns.

"Preparation for TBYB means exploiting the relevant WMS [warehouse management system] and automation technology that will streamline the returns process considerably," he said. 

But, looking at the research, TBYB is going to be applicable to most merchants at some point.

In fact, much like free shipping, next-day delivery and free returns, O'Carroll believes that this trend will soon become a service that’s expected by consumers and necessary for merchants that want to gain competitive advantage.