23/12/2013 05:57 GMT | Updated 19/02/2014 05:59 GMT

Online Retailers in the Eye of the Product Returns Storm This Christmas

A surge in online sales this September saw Britain hailed by the UK press as the 'internet shopping capital of the world'. The proclamation was made after a rise in monthly online shopping sent an array of retail records tumbling.

Likewise, Black Friday in the UK (now regarded as the most important day in the global retail calendar) saw UK cardholders splash out a record £467 million online. It was a rise of 59% compared to the corresponding day in 2012 and seen by many as a promising indicator for overall Christmas sales.

This dramatic growth in online shopping is great festive news for many major retailers looking to make up for shortfalls in physical stores. However, an increase in sales also means retailers must brace themselves for a corresponding increase in product returns.

It's an issue that is a particular problem for fashion retailers as - unlike goods such as games consoles and iPads - with clothing one size doesn't fit all. Unable to try on an item as they would in the high street, shoppers eager to find the perfect fit are instead ordering multiple sizes of the same piece of clothing to ensure they get something that suits.

With more and more retailers looking to remain competitive by offering free returns, this multiple buying sizes of the same outfit is a huge concern for sellers.

Return to sender

A recent report shows that the rate of returns for clothes sold by online retailers is five times higher than for bricks and mortar sales. Furthermore, research has shown January has the highest rate of returns in the retail calendar, with up to 40% of clothing bought online sent back to stores.

Retailers are trapped in a vicious circle of having to push sales online whilst also offering the safety net of an attractive returns policy (usually free postage and packaging) to reassure nervous shoppers who are concerned garments won't fit them.

In an article in Drapers Magazine earlier this year, Andrew Davidson, who heads up the CFO (Chief Financial Officers) advisory team at consultancy Kurt Salmon, says many retailers are 'flying blind' when it comes to product related returns, causing huge operational issues.

It is not simply the money lost when a sale is sent back, but also the time and resources eaten up in the process. Forecasters must take these factors into consideration when making financial plans which is no easy task. Especially as returned goods sometimes can't be resold and if they can be it often has to be done at a vastly reduced rate, further compounding the issue.

New Year's resolution

Encouragingly, steps are being taken to address the issue, the ecommerce industry is now starting to deploy 'virtual fitting solutions' (such as our offering Virtusize) which helps consumers pick the right size and improves the overall online shopping experience. Virtusize allows shoppers to compare garments they already own with clothing they wish to buy, helping them visualize whether those lovely online jeans will be a snug fit or a little too tight.

Nick Robertson, Chief Executive of ASOS, a client, recently told Reuters that, "a one percent fall in returns would immediately add ten million pounds ($16 million) to the company's bottom line." This statement gives a clear indication of the importance to fixing the problem and the rewards that await those that do.

Whilst most retailers will have to weather the product return storm for 2013, the increasing adaptation of virtual fitting room technology in 2014 should help retailers to combat the boomerang effect of clothing returns and significantly reduce the cost of fit related returns for next Christmas.

The goal for next year should not just be about breaking 2013's sales targets, but also hitting an all-time record low for product returns.

That really would be something to give the industry festive cheer.