Retailers face 'returns tsunami' as they adopt buy-now-pay-later services
Asos , Topman and Schuh are among retailers who have started offering their customers the ability to buy now, pay later. But, this new service trend is not only threatening to unveil an unprecedented surge of returns but more importantly, alter consumer purchasing behaviour overall, warns a new report
Some 76% of consumers say that they would 'definitely' or 'maybe' purchase more items if offered a try-before-you-buy option, with shoppers saying they would order an average three extra items each month, only to return them without ever paying a penny, according to the Brightpearl research, which canvassed the opinions of 200 retailers in the United States and the United Kingdom and the views of 4,000 consumers in this market to investigate the shifting attitudes towards try-before-you-buy services.
The research found out that 87% of shoppers would return up to seven purchases, and 85% of consumers expect retailers to provide returns for free.
On the other hand, more than 40% of retailers reveal that they have detected a marked increase in 'intentional returns' over the past twelve months when customers deliberately over-order multiple items knowing that returns are free or cheap.
More than a half (51%) of retailers agreed that their margins are being strongly impacted by the process of handling and packaging and 72% believe they will be squeezed even further as the try-before-you-buy trend intensifies, as customers demonstrating a demand for this service that retailers will most likely adopt in the near future as an attractive add-on in a customers journey.
In fact, the study reveals that 17% of global retailers have already adopted the try-before-buy model, and by 2019 more than a quarter will offer this type of service to their clientele.
Despite the complexity of managing returns, 69% of retailers say that they are not deploying technological solutions to process them, with the average of purchase passing through seven customers before it's listed for a resale.
With returns already costing UK retailers £60 billion a year, the research finds that for the majority of retailers will result in the gush of returns, with customers returns on average three items a month, and at least will triple the cost of returns if they take no action.
High growth and medium-sized enterprises will be most exposed, with 70% concerned that try-before-you-buy service will affect their profitability.
Derek O’Carroll, the chief executive officer of Brightpearl said: “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 of 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.
"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.
"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.”
Derek O’Carroll, concluded: “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.”
Photo credit: Voy_ager