New ‘try before you buy’ (TBYB) services are fuelling a surge in product returns that could overwhelm retailers. Here we look at what’s driving the TBYB trend, the challenges it creates and why the growth in returns is actually good for retail.
Most retailers think it’s bad for business when products are returned. There’s a good reason: when 20 percent of products sold online are sent back and returns total more than $351 billion in lost sales, that’s a huge amount of returned inventory and money spent on a process that doesn’t increase revenue.
But returns are a natural part of the buying process. And their numbers are growing as online sales increase.
Consumers want to inspect items as they would in-store – regardless of which channel they purchase through – and don’t necessarily see a purchase with the finality you do. They don’t want to be charged at all until they’ve decided what they’d like to keep. And they certainly don’t want to wait for processing in order to receive reimbursement.
Expectations are rising even further, with 67 percent of consumers saying they check return policies before making a purchase, 85 percent of consumers expecting free returns and more than half of online shoppers avoiding stores with a strict returns policy.
The rise of ‘try before you buy’
Smart retailers have recognised this point of friction in the buyer journey and are disrupting online shopping with new returns options. They’re not only treating returns as an important part of doing business, they’re encouraging them and using them as an opportunity for competitive advantage.
Many are extending their returns policies with ‘buy-online, return-in-store’ options. More and more retailers are not only shipping for free (with no order minimums), but also offering no-questions-asked free returns. Shoe retailer Zappos even offers 365 days to return an item in its original condition.
Others are taking that customer experience to the next level by introducing ‘try before you buy’ (TBYB) services. This model lets customers order multiple items before deciding what they’d like to keep with no upfront cost; they simply return anything they don’t want. Just like in a store.
There are a number of successful approaches to TBYB
Clothing subscription businesses like Trunk Club and Stitch Fix have led the way, letting customers order a box of clothing to try on for 3 or more days, send back what they don’t like and only be charged for the items they keep.
Warby Parker, the prescription eyeglass retailer, built its business around TBYB. Customers select five frames to be shipped to them for free, return them using a prepaid return label and then go online to order the glasses they want.
Fast fashion retailer ASOS also makes it easy for customers to try before they commit. When a customer places an order, they receive an email from Klarna – a payment services company – with payment instructions. The goods are delivered, the customer chooses the items they want and returns the remainder using one of ASOS' free return options. They then have 30 days from when the order was dispatched to pay for the goods via credit or debit card.
The TBYB trend could overwhelm retailers with a huge surge of intentional returns that increase complexity and undermine profits.
Research shows that shoppers offered TBYB will purchase on average five extra items each month, but 87 percent would return up to seven purchases. More than 40 percent of retailers have seen increased 'intentional returns' in the past year – customers ordering multiple items because returns are free or cheap.
With the average returned purchase passing through seven people before it’s listed for resale, almost half (44%) of retailers agree their margins are being strongly impacted by handling and packaging returns and 70% say they are worried they will be squeezed further as TBYB intensifies.
The unexpected benefits of product returns
Despite these challenges, TBYB is a huge opportunity to turn returns into a growth opportunity. Here are three ways your business can benefit:
1. Drive revenues
A flexible, fast and free returns process removes a barrier to purchase and encourages indecisive buyers to purchase, leading to a lift in sales. It’s particularly effective when combined with free delivery.
Retailers offering TBYB experience a 15% increase in sales when compared to credit cards, with the average online store order increasing by 30 percent and the average spend by 34 percent. Another study showed that 72 percent of shoppers would consider ordering goods and paying for them later, and 49 percent would consider ordering goods and paying for them in 30 days.
2. Increase profit
By treating returns as part of a profit engine, not an expense, you can improve your bottom line. Breaking with tradition and encouraging customer returns not only gives you benefits in the near term but can significantly increase profits over the long term.
A study showed that satisfactory product return experiences actually benefited retailers by lowering the customer's perceived risk of current and future purchases, and resulted in 29 percent higher profits compared to retailers who ignored or downplayed returns.
3. Improve customer experience and reputation
By recognising online returns as the equivalent of handing items back after trying them on in-store, you can build trust and loyalty. If customers are happy with your policy, they are more likely to buy more from you, with one study showing that 92 percent of consumers will buy something else if returns are easy.
Retailers have found that regular customers who usually bought similar things started to experiment with new brands and new styles – they used it as a way of shopping risk-free. And retaining customers improves profits: it can cost five times more to attract a new customer than it does to retain an existing one.
Make online match in-store
Soon we’ll share how to turn your returns into an opportunity to improve customer experiences and drive profitable growth.
In the meantime, if you’d like advice on how to meet customer expectations with more streamlined and flexible returns, get in touch. We’d love to help you put the right technologies and processes in place to capitalise on the trend without cannibalising your margins.