Zero clothing returns. Digital future or fairytale?

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1 Zero clothing returns. Digital future or fairytale?

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3 Executive Summary Retail is disrupted and out of balance; in the race to win with customer experience, operating costs have spiralled. Digital technologies will transform clothing retail it isn t a case of if but rather when Helen Merriott Retail Advisory Lead Partner The retail industry is increasingly being disrupted. Demand for a truly omni-channel shopping experience requires far greater inventory visibility and supply chain flexibility. Retailers are aware they need to adapt to survive this shifting landscape. Our recent UK research into returns and digital technology in retail highlights that 30% of what is bought online is returned and, as the proportion of online purchases increases, so will the cost of returns. Returns cost UK retailers 60bn a year, 20bn of which is generated by items bought over the internet. This creates a significant challenge for retailers. Retailers have addressed size and fit issues with lenient returns policies to enhance shopper experience. However, this approach has led to increased operating costs due to multiple items returned. We conducted an online shopper panel survey to test our hypothesis that sizing drives shoppers to order multiple items as they are unsure of the fit. We ve found that on average 2.2 items out of every 10 purchased on line are returned and that 76% of shoppers return clothes due to bad fit or sizing. In this report, we consider the key drivers behind the volume of returns and ask how retailers should respond.

4 The challenge of transformation in retail Is it a sale until your customers keep it? How does your returns policy affect buying behaviour and loyalty? The advent of online retail has brought both opportunities and challenges to retailers, providing: Ability to deliver an improved cross-channel customer experience Increased complexity of operations Increased cost savings on operational costs attributed to returns In a recent global EY survey of senior retail executives, 77% feel they can no longer reliably sustain profitable growth, and a striking 81% said that they need to be bolder with their operating models. Against this backdrop, most retailers have come to appreciate that creating a good return experience offers competitive advantage. Encouraged by these flexible return policies, customers are now returning goods in record numbers. Can we reduce the cost to the business and change this behaviour by improving shoppers confidence? Can we use data to increase sales by recommendation and proactive selling? We conducted an online survey of 1,000 UK shoppers to understand customer behaviour and test their attitudes towards technology solutions intended to reduce the need to return items bought online. Survey responses showed that returns are creating a significant challenge for retailers and that a significant percentage of clothes purchased online are returned due to sizing and fit. 3

5 Why customers return items? 1. Size and fit 75% We found that returners are more likely to be female, younger, higher income: 2. Product quality 3. Apperance 4. Expectance 11% 9% 7% Women are twice as likely as men to say they ordered more than one of the same item to try different sizes (15% vs. 7%). Why how do you address that? Younger shoppers (18-24 years) are most likely to say they made a return because the item didn t match the description or picture online (24% vs. 19% average). 5. Other comments 7% How are returners different from non returners? Returners Non returners Returners Non returners Difference Male 47% 53% Female 53% 47% % 25% % 46% % 29% Up to 19,999 19% 29% 20,000-49,999 55% 48% I prefer shopping online to shopping in store I enjoy the experience of receiving the package in the post I love trying on the things I buy at home It's important I get my look exactly right I only buy clothes when I really have to I am very loyal to particular brands I like to buy expensive designer brands 48% 38% 9% 74% 64% 10% 74% 53% 21% 63% 48% 16% 35% 50% -15% 48% 33% 15% 35% 24% 11% 50, % 16% Those who agree with each statement Returners are also more likely to agree that they love trying on the things they buy at home and it s particularly important that they get their look exactly right. In comparison, non returners are much more likely to agree that they only buy clothes when they really have to. Retailers have a number of choices and decisions to make, the first of which is the strategic reaction they wish to employ in response to changing customers behaviour. The majority of online clothes shoppers also want convenience of delivery and returns; they want cheap and easy delivery and do not want to be penalised or charged for returning goods. That said, the same shoppers would prefer not to be bothered with the inconvenience of the returns process at all and would buy more online if they were more confident of fit. Retailers have a number of choices and decisions to make, the first of which is how they respond to this range of customer behaviour. 4

6 Keeping your stock sold: could technology disruption be both the kill and the cure? Within ten years we expect that the clothing supply chain will be integrated, lean and supported by rich digital technologies which allow people to focus on creativity in design, make and delivery of experiences to their loyal customers wherever they may be. 5

7 This will require digital support for supplier collaboration, 3D CAD patterns, analytics which model fabric behaviour, body scanning technologies and immersive online and physical store try-on avatar experiences; all of this at scale, affordable and fully integrated. You would be forgiven for thinking that it sounds like a fairy tale. While the simple answer is to address the customer-facing online challenge, we believe the opportunities span more broadly, across design, production and sales channels: In-store and online Design and production Provide clarity in product dimensions and sizing to reduce returns, increase consumer confidence and satisfaction in online shopping Decrease design and production costs through improvements in material usage from samples to production Offer personalised styling and sizing recommendations and decrease returns Improve speed to market with streamlined design and production steps Improve demand forecasting, leading to reduced inventory costs We evaluated ways sizing can be improved using data-centric and visualisation solutions: Data-centric Visualisation Customer data: Customers input size data and preferences, allowing the solution to recommend the best fit. Browse and purchase history can be an input to recommendations 3D Body scanning: A physical 3D body scanner creates a personalised profile to provide recommendations Social insights: Customers input size data which is combined with data from social peers to provide fit recommendations Visualisations / Avatar: Customers input data to create an avatar that shows fit and style We studied the market and assessed over 25 start-ups which are developing solutions that can help retailers reduce the cost of returns and address issues across the value chain. While there is no single end-to-end solution which dominates, the technology is available today and we predict that within 10 years will be mainstream. Retailers who have addressed sizing are seeing returns decrease by as much as 50% using new technology. Current solutions use data analytics and visualisation technology to address root cause in design, production and customer experience: Tech-enabled data input Data input & big data Visualisations / Avatar 3D Body scanning Design Sample & Production Retail Online Retail Store From our global EY research, only 22% of senior Retail executives worldwide feel confident in the ability of their organisations to innovate in response to customers changing wants and needs. One thing is for sure, if you don t start, you will be behind. Maybe this is the week to think about how to begin? Social insights Enhance Productivity Increase Customer Loyalty Decrease design and production process and timeline Maximise material efficiency prior to product launch Real time testing of product dimensions against sizing needs Bespoke customer experience, supporting product and style recommendations Increased customer confidence in ordering the right size online 6

8 How to get started? We focus on understanding the problem, the opportunity for the retailer and customer, the business case and then shaping a rapid approach to deliver outcomes. 1. Define the problem statement, opportunity and business case Analyse returns to understand the problem Use customer, location, category and size data to isolate returns behaviour Establish long term benefits and targets 2. Rapidly develop ideas and solutions Brainstorm and develop potential solutions Design options to test all or part of solutions Test prototypes with customers 3. Scale solutions Launch continuous short cycle trials to refine or scale Test and adjust to make changes at pace EY can help accelerate your thinking and results. We can work with you to identify the root cause of the problem, the opportunity and connect you with our teams and partners to develop the right solutions to improve the customer experience, reduce the cost of returns and drive improvement across the supply chain. 7

9 Appendix: Digital FIT survey Methodology: online panel survey with n=1,000 online UK shoppers. Target audience: online clothes and shoes shoppers; good representation of consumers who have returned items; good spread of interviews across key demographics. Target audience (in detail): all participants had bought clothes/shoes online a 50% target was set on those doing so at least once a month. A 50% target was also set on returns behaviour (i.e. must have returned clothes/shoes after an online shop). Additionally, a target was set to ensure we achieved a minimum of n=200 interviews with consumers from key UK retailers. 8

10 Contacts 9 Helen Merriott Matthew Burton Partner Retail Advisory Lead Partner Partner EMEIA Digital Operations Lead Partner hmerriott@uk.ey.com mburton@uk.ey.com John Simlett Oliver Latham Executive Director UKI Innovation Strategy Lead Senior Manager Retail Innovation Strategy jsimlett@uk.ey.com olatham@uk.ey.com

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