Try-before-you-buy is causing a ‘returns tsunami’
Try-before-you-buy (TBYB) is a new shopping trend that enables customers to order multiple items before deciding what they’d like to keep. There is no up-front cost; shoppers simply pay for items they keep after a certain number of days – usually 30 days.
They return unwanted items and are never charged. It means that customers can order and try items as they would in-store, but crucially, they do not have to wait for returns to be processed to receive reimbursement.
TBYB options are increasing, thanks to online businesses including ASOS, Topman and Schuh. We decided to look a little closer into this trend, researching the opinions of 200 retailers and 4,000 consumers, and found some unsettling insights.
While 25% of retailers globally will adopt online try-before-you-buy services by 2019, a majority of companies are unprepared for a surge of returns that could triple return costs for retailers, according to our new report.
We found that 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 their profits.
The appeal of TBYB
There is no doubt that try-before-you-buy is an attractive offer for consumers, and retailers may covet the incremental sales and goodwill that it generates, but the costs of handling returns must be considered.
With returns already costing UK retailers £60bn a year, this figure may skyrocket three-fold 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 four extra items each month, yet 87% would return up to seven purchases. Meanwhile, 85% of these consumers expect free returns.
It’s no surprise then, due to these circumstances, that more than half of retailers agreed their margins are being strongly impacted by handling and packaging returns, and 70% said they are worried they will be squeezed further as TBYB intensifies.
TBYB: good news for retail or a future faultline?
Try-before-you-buy removes another barrier to purchase – potentially leading to uplifts in sales for retailers. Consumers will buy more, but retailers must be aware that their return rates will significantly increase, alongside their costs. For example, when you consider handling, transport, admin and possible repacking, the costs of returning an item into your supply chain could be double that of delivering it.
All things considered, does the equation work in most retailers’ favour? Probably not without an investment in technology. However, despite the concerns of retailers, the vast majority are not making any moves to pre-emptively tackle the problem. Right now, almost two thirds of retailers are not deploying technology solutions to process returns. This is despite the complexity of managing them — the average returned purchase passing through seven people before it is listed for resale.
This could spell disaster for business owners that don’t have the right framework and solutions in place to manage returns. Consumers sending back many more items a month may prompt an unmanageable tsunami of returns for some merchants.
As an increasing number of retailers are pushed to adopt try-before-you-buy services by the competitive marketplace, the logistical and financial implications of such consumer benefits could lead to significant problems.
I remain optimistic that TBYB is a great opportunity. However, businesses must have the right systems in place to optimize 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.
And, 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.
Derek O’Carroll is CEO of Brightpearl, a cloud-based ERP that works with retailers and wholesalers to implement back-office automation. He is responsible for overall company strategy and delivering on Brightpearl’s mission to automate retail.
