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Study: Try-before-you-buy trend is causing ‘returns tsunami’

A growing online shopping trend may be a great perk for consumers, but it could take a significant toll on unprepared retailers.

While 25% of retailers globally will adopt online try-before-you-buy (TBYB) services by 2019, but a majority of companies are unprepared for surge of returns that could quadruple return costs for retailers in the United States, according to Brightpearl.

TBYB options are increasing, thanks to online businesses including Amazon's new Prime Wardrobe, Trunk Club, Stitch Fix, Warby Parker, and Asos. However, the trend is threatening to overwhelm retailers as a huge surge of intentional returns could undermine profits.

Total merchandise returns already account for more than $351 billion in lost sales for U.S. retailers, according to the National Retail Federation. However, this figure could skyrocket due to the complexities of TBYB returns.

For example, more than 40% of retailers have already seen increased 'intentional returns' in the past year (customers ordering multiple items because returns are free or cheap).

Looking ahead, shoppers offered TBYB would purchase on average five extra items each month, yet 87% would return up to seven purchases. Meanwhile, 85% of these consumers expect free returns.

Meanwhile, shoppers want faster returns processing. Three-to-five days is considered acceptable for processing returns, however, it currently takes an average of six days for consumers to receive reimbursement on returning items.

Due to these circumstances, 44% of retailers agreed their margins are being strongly impacted by handling and packaging returns, and 70% said they will be squeezed further as TBYB intensifies, the data revealed.

As expected, small-and-medium-sized retailers are most at risk, with 70% worried that TBYB services will affect their business. Further exacerbating the issue is that almost two thirds of U.S. retailers are not deploying technology solutions to process returns. This is despite the complexity of managing returns — the average returned purchase passing through seven people before it's listed for resale, the study revealed.

"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.”

Despite the challenges, O’Carroll remains hopeful. "The fact that two-thirds of retailers still process returns 'by hand' shows that with the right preparation, and by exploiting relevant technology, forward-thinking merchants should be able to turn the returns tsunami into a tide of fresh profits,” he added.
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