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Reverse Logistics Magazine - Edition 99
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Leveraging Virtual Online Change Rooms to Reduce Returns

Leveraging Virtual Online Change Rooms to Reduce Returns

by Sylvie Thompson, Associate Partner, Infosys Consulting

Reverse Logistics Magazine, Edition 99

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A couple of years back at the RLA Annual Conference a guest speaker spoke about Virtual Change Rooms and how they can significantly reduce returns. This topic sparked great interest for me and I have been following its progress ever since. I believe it is a hidden tool in the battle to reduce online returns and gain ecommerce profitability.

It’s no secret that retail dollars are shifting from bricks to clicks. Online sales growth in apparel is >25% year-over-year, growing faster than total retail sales. On the surface, this is cause for celebration. However, apparel consumers have adopted another shift in behavior that has online retailers worried.

Online apparel customers have traded in-store change rooms for the privacy of their own home, establishing what is now referred to as “Home-Try-On” (HTO) behavior. The challenge with this shift in behavior is the return rate for online apparel sales is significantly higher than in-store sales, in excess of 40% within women’s apparel categories. It is not uncommon for consumers to purchase multiple sizes of the same product, knowing in advance that they will be returning some – if not all – of the items purchased.

In the last two years, we have also seen the rise in subscription boxes with many focused on apparel. The purpose of these subscription programs is to ship to you multiple items knowing you will only selected a few if any. These programs promote no commitment and no charge until you select the items you want to keep taking the entire concept of home-try-on even further.

This change is having a profound impact on retail supply chains and online profitability. In addition to mastering the art of home delivery (also called ‘last mile’ or ‘final mile’ delivery) through direct-to-consumer fulfillment operations, retailers must also absorb the cost of direct order processing, handling and shipping. On top of those costs are all the costs associated with higher returns, including opportunity cost in lost sales resulting from having merchandise trapped in the HTO cycle.

One innovative approach to address this challenge leverages virtual reality. A study by professors Santiago Gallino and Antonio Moreno presented at the RLA conference demonstrated that this technology can lead to impressive results.

The Value of Fit Information in Online Retail: Evidence from a Randomized Field Experiment found that leveraging virtual reality technology to establish online virtual change rooms resulted in higher conversion rates (+6.4%), higher order value (+1.6%), lower fulfillment cost (-5%) AND a reduction in returns (-5.2%). The study also highlights the ability of virtual technology to modify consumer behavior, reducing the HTO effect by 25%. All of this leads to a higher net profitability per order, estimated at roughly +13%, with upper ranges hitting 20% for those retailers who had a return rate >40% prior to enabling a virtual change room.

An additional finding in the study is the increase in consumer loyalty along with more frequent visits to the retailer’s online store that result from incorporating virtual change rooms. When a consumer takes the time to provide personal details (height, weight, bust size, waist size, along with hair color, skin tone, etc.) needed to set up their own virtual model, they have made an investment in their relationship with the retailer. Consumers who create their own 3D model, create and assemble their own outfits and vividly explore a brand’s offering are more likely to imagine themselves owning the brand’s collection. The relationship has evolved from transactional to loyal and personal, and total customer value increases along with per order profitability.

Since this study was conduct, significant advances in technology have taken place. For example, through the use of scanning technology, consumers no longer even have to type in their person details. They can simply let their camera scan their body and digitally create a 3D model. Retails and Brands can establish more advance scanning centers within retail stores to capture the same information while creating a more holistic customer experience.

Virtual reality technology has also advanced and can further enhance the virtual change room experience. Just like stepping into a game, virtual reality can now be used to allow consumers try on experiences from home without the need to ship and try.

We are now seeing this technology mature with several leading platforms emerging. The key continues to be selecting one that fits within your online brand store and contributes to the consumer experience you want to promote. The heavy lifting is the need for digital content. Online content must be digitally enabled to allow consumers to outfit their 3D model. However, not all content must be digitized in order to launch or to capture maximum returns on your investment. If you strategically select what to digitalize, a consumer can virtually experiment with portions of an apparel collection, providing sufficient insights into fit and size that enable the consumer to purchase non-digital listed items.

Virtual online change rooms demonstrate significant promise in addressing numerous challenges facing online sales for apparel retailers with a particular emphasis on reducing returns. I believe recent advances in the technology make now the perfect time to explore the option of virtual online change rooms.
Sylvie is a passionate and results-oriented supply chain executive. Her experience with supply chain start-ups has demonstrated to her that supply chain professionals must question the status quo in order to deliver next generation solutions. She is a believer in hands-on experimentation in order to deliver maximum results. Sylvie has developed and implemented numerous supply chain transformation initiatives for her clients and has extensive experience working with leading retailers and consumer brand owners. A supporter of lifelong learning, she continues to seek out fresh and innovative new ideas and insights through a network of supply change thought leaders. She is also giving back to the field as a guest lecturer at the University of Maryland.
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