Retailers are being flooded by a 'returns tsunami'

Dive Brief:

A huge surge – or “returns tsunami” – of unintentional returns may overwhelm online retailers offering try-before-you-buy (TBYB) options to consumers, according to a new report from Brightpearl. Retailers now providing TBYB are Amazon with its Prime Wardrobe program, Stitch Fix, Trunk Club, Warby Parker, ASOS and Best Buy.
Globally, 25% of retailers will initiate online TBYB by 2019, but most are not ready for the proliferation of returns that could quadruple return costs for U.S. retailers. The Brightpearl study reflects the opinions of 200 retailers and 4,000 consumers in the U.S. and U.K.
If offered TBYB, U.S. shoppers would select on average five extra items each month, but 87% would return up to seven of these items. Eight-five percent of consumers expect free returns, the Brightpearl report said.

Dive Insight:

Try before you buy is an attractive offer for consumers, and retailers may covet the incremental sales, but the logistical expenses of curating the boxes and handling the returns need to be considered. Does the equation work in most retailers’ favor? Probably not without an investment in technology, Brightpearl said.

For example, Stitch Fix charges an upfront $20 styling fee which is applied as a credit on purchases, according to its website. The consumer sets the budget, stylists curate a selection of five items per shipment, and there is free shipping, returns and exchanges. Items range from $20 to $600, with an average cost of $55 per piece. That adds up to an average of $275 per shipment.

Among other retailers with TBYB is Best Buy which offers those shopping online for cameras, drones, audio equipment and fitness trackers the chance to rent them first from Lumoid. Customers get a 20% credit toward purchase from the rental. One in three customers who rent, eventually buy. Various types of bicycles are also available on a TBYB basis from multiple retailers.

Over 40% of retailers have seen an increase in "intentional returns" in the past year – that is, customers who order multiple items because returns are either free or cheap, Brightpearl reported. Forty-four percent of retailers said margins are being strongly impacted by handling and packaging returns, with 70% saying they will be squeezed further as TBYB intensifies.

The TBYB trend puts small-and-medium-sized retailers most at risk. Seventy percent are concerned that TBYB services will affect their businesses. Meanwhile, 69% of retailers are not deploying the technology needed to process returns. Managing returns is a complex process as the average returned item passes through seven people before it is listed for resale, Brightpearl said.