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Retailers facing “returns tsunami”

Derek O'Carroll
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Study throws a spotlight on online buy-now-pay-later trend that’s great for consumers, but a scary prospect for unprepared retailers as growing threat of returns threatens to overwhelm them. Contributor Derek O’Carroll, CEO – Brightpearl.

A new report released highlights the hidden dangers of online companies such as ASOS, Topman and schuh introducing try-now-pay-later 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.

Brightpearl’s study reveals the try-before-you-buy trend will have a major impact on both purchase behaviour and, of course, returns According to the report, the majority of consumers (76 percent) 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.

Worryingly, 87 percent would return up to seven purchases – with research showing that 85 percent of consumers expect retailers to provide returns for free. The report also reveals that more than 40 percent 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.

Furthermore, more than half (51 percent) agreed that their margins are being strongly impacted by the process of handling and packaging returns and 72 percent believe they will be squeezed even further as the try-before-you-buy trend intensifies. The survey reveals that 17 percent of global retailers have already adopted the try-before-you-buy model. By 2019, more than a quarter will offer this type of service to customers.

Revealingly, the study finds that a staggering 69 percent 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 returns already costing UK retailers £60bn a year[1], the study finds that for many retailers this trend will result in a surge of returns, with customers returning on average three items a month, and at least triple the cost of returns if they continue to take no action.  High growth and medium-sized businesses will be the most exposed, with 70 percent worried that try-before-you-buy services will affect their profitability.

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 by Brightpearl also revealed that beyond an expectation for free returns, shoppers also want their returns to be processed faster. In addition, a majority within all age groups believe that a time frame of three to five days is acceptable for processing returns. However, it currently takes an average of six days for consumers to receive reimbursement on returning items.10

 “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” says 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.

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.

 Those curious to find out more about the impact of the ‘returns tsunami’ should read ‘Try Before You Buy: a returns tsunami for retail’.

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.

Methodology

The report results are from an electronic survey conducted in February 2018. 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.