Drapers examines the pros and cons of two emerging models of pay-later delivery.
We are living in an on-demand economy. Services such as Uber, Deliveroo and TaskRabbit are becoming more popular, and consumers increasingly expect flexibility and convenience. Research from Mintel shows the value of same-day deliveries rose from £488m in 2012 to £1bn in 2016.
Yet for fashion retailers, it is not enough to be quick. There are other factors that influence a shopper’s decision to purchase: will it fit, will it be good quality? Often this leads to basket abandonment, especially when customers know they will have to wait for a refund if they decide to return their purchases. The challenge for fashion retailers is to try to assuage those concerns.
One model emerging in the luxury sector is “you try, we wait”. This involves asking a courier to wait while the customer tries on their purchases. The courier then takes back any unwanted items, eliminating the need to return them at a later date, and the customer pays for what they keep. Net-a-Porter and Mr Porter’s “you try, we wait” service will launch in London in September, and New York and Hong Kong by the end of the year.
But luxury players are not the only ones seeking to set themselves apart by offering pay-later options. Earlier this month, Amazon disrupted the industry once again with the announcement that it will trial a new service called Prime Wardrobe in the US, which also allows customers to pay only for what they keep from their online orders. Here, we examine the pros and cons of these services and how likely is it that other fashion retailers will eventually follow suit.
Net-a-Porter’s “you try, we wait”
Yoox Net-a-Porter Group’s (YNAP) senior director of global operations Bill Duffy argues that “you try, we wait” is a “truly customer-centric approach” to ecommerce: “It gives the customer the opportunity to try on what they want, in the comfort of their own environment and at a time that suits them.
“Also it removes some of the friction in the path to purchase as customers are not actually purchasing the goods until they decide to keep them.
“And, significantly, it removes any concerns from the customers’ minds around the returns process.”
There are also advantages for the retailer: as well as driving brand awareness, “you try, we wait” could lead to more sales and a higher conversion rate.
“It is designed to solve the problem of people not buying items such as suits, jackets and shoes online, as finding the right fit is a real challenge,” observes Tim Robinson, chief executive of click-and-collect provider Doddle. “One high-end retailer told us that more than 40% of suits they sell online are returned and the big problem is fit. Because Net-a-Porter is trading exclusively in higher-value items, they have more margin to play with when it comes to fulfilment methods.”
Net-a-Porter’s “you try, we wait” service will be available only to EIPs (extremely important people) – or its highest-spending customers.
“They are a segment worth investing in via innovative fulfilment options,” says Robinson. “The equation to balance here is: how much can you scale those innovative and inevitably more expensive delivery options if this new acquisition channel succeeds?”
There is no doubt “you try, we wait” is an expensive service. The longer and more frequent the stops, the higher the delivery costs. YNAP has its own logistics network of eight distribution centres spread around the world, and by 2020 it will have invested more than €500m (£385m) in its technology and logistics platforms to enable it to offer such delivery options.
“Providing this service at scale, across a wide variety of key markets, requires significant investment in a technology and logistics platforms, and for those two things to work seamlessly together,” confirms Duffy.
Observers are quick to point out that this is not something smaller or non-luxury retailers can easily consider.
“This lends itself more to luxury and premium brands whose price points can justify it,” says Martin Newman, executive chairman at multichannel consultancy Practicology.
Newman adds that, even for luxury players, there are other drawbacks to consider. For example, “you try, we wait” may lead to larger basket sizes, but by extension it ties up that stock. And it could increase returns rates by making the process easier.
Amazon announced last month that it is testing a new delivery service in the US, which is available for its Prime customers. Customers can select between three and 15 items, which are delivered to them at home. They have up to seven days to try on the clothes and then can schedule a free pick-up for the items they do not want. If they keep three or four items from the box, they get 10% off everything, and if they keep five or more products they get 20% off – and they only pay for the items they keep.
Prime members have seven days to try on items. Before the end of the seven-day try-on period, they can go to “Your orders” to check out and indicate which items they are keeping or returning. Prime Wardrobe shipments come in a resealable box with an included prepaid label. Prime members can then simply drop off their return at the nearest UPS location, or request a free pick-up.-
This type of delivery proposition could work particularly well for fast fashion retailers, says Robinson: “Over the last few years, fast fashion consumers have become accustomed to buying many items, fully expecting to return a proportion if not a majority of them. For Amazon, we would expect to see a large increase in checkout conversion and sales. By offering customers the chance to order multiple items without needing to pay up front, customers’ fears surrounding size, colour, quality, fit are all alleviated.”
One of Prime Wardrobe’s key advantages is that it incentivises customers to purchase multiple items through its tiered discounting structure – which could lead to larger average basket values. It also rewards them for keeping most or all of the items.
However, as with “you try, we wait”, the retailer takes on most of the risk – tying up stock, which may not be bought. Amazon incurs the shipping costs without making a sale, and may also have to pay to pick up returned items. This is only possible because it owns its own, large scale logistics network.
Not everyone is convinced. Kieran Donovan, head of supply chain at Mountain Warehouse, says: “’Pay on delivery’ to me is a legacy business model still used in China and the Middle East. I’m struggling to see what value Amazon think they are going to get from it. Perhaps less admin around payments and refunds, but those processes are streamlined anyhow.”
Comments on Drapers’ website are similarly sceptical: “This will be interesting in so far as returns are concerned, one wonders what percentage would need to be set aside to manage this, and, of course how this will affect brands supplying them,” says one anonymous commenter.
The Drapers verdict
Despite some of the potential drawbacks, both “you try, we wait” and Amazon’s Prime Wardrobe service are likely to succeed in removing some of the barriers to online fashion purchases. However, it seems less likely that these services will become mainstream delivery propositions in the UK any time soon. Amazon has the upper hand in logistics, and Net-a-Porter in terms of margin. To make these options available, other fashion retailers would need to have the correct technology and logistics infrastructure in place, which would require some serious capital investment.