Reducing returns with artificial intelligence

Returns are a huge problem in the online fashion trade with horrific figures of up to 70 percent for the proportion of articles sent back. One of the most common reasons for returns: the wrong size. A Munich-based start-up now aims to solve the problem with artificial intelligence.

“Scream with joy!” was the slogan of a long-running advertising campaign by a leading German online retailer. The second line of the original slogan, ‘Or send it back’, was edited out at some point. Possibly because it was not only the customers who screamed on receiving the goods but also the company’s finance managers when they saw the return rate, which has long been seen as one of the biggest costs incurred in the online fashion trade. Although there are as good as no official figures, the proportion of returned goods is estimated to be up to 50 percent. And, even worse, according to the Return Management Research Group of the University of Bamberg, fashion textiles and shoes reach return rates of a horrifying 70 to 80 percent.

Returning a product costs over € 15
Unfortunately, customers love free returns: in a study by PricewaterhouseCoopers auditors, 74 percent of respondents said this opportunity was important for them. For online retailers – especially the small ones – this is an expensive customer favourite costing, according to the Research Group, € 15.18 per returned item, a figure that includes the costs of transport, handling, administration and the decline in value of the goods.

Naturally, many online retailers have already priced-in their return costs. However, because more and more customers are ordering online (and returning) goods, especially during the corona pandemic, increasing attention is now being paid to the environmental impact of returns caused, for example, by additional CO2 emissions. Some fashion retailers are compensating for this with a CO2 offsetting scheme, via which customers can support selected emission-reduction projects by making an additional payment. Christian Kastrop, Under Secretary of State in Germany’s Federal Ministry of Justice and Consumer Protection, is already thinking ahead. In the ‘Handelsblatt’ financial newspaper at the beginning of December, he suggested an obligatory return fee to slow down the boom in returns.

The key: getting the size right online
Accordingly, many online fashion shops are working on a solution to the problem that will be acceptable to all concerned. One of the main thrusts revolves around ways to supply customers with the articles required in the right size and fit first time. After all, one of the primary reasons for sending back articles of clothing is that they do not fit properly. On the one hand, this is because many retailers carry international articles, the sizes of which tend to differ. On the other hand, there is, of course, no opportunity to try on the clothes beforehand – and scream with delight when they fit perfectly.

Many online shops evaluate their customers’ individual order and return history with the aim of making better size suggestions. But what if that is not enough? “98 percent of consumers don’t buy anything and, in many cases, this is because they are afraid of ordering the wrong size”, says Leon Szeli of start-up Presize. Founded in Munich in 2019, the company has developed a ‘digital size assistant’ designed to match online shoppers with their optimum fit and size.

Shopping without a return label?
The idea came to Szeli and his two co-founders at the Centre for Digital Technology and Management, a kind of high-end founding institute of the Technical University and the Ludwig-Maximilians-University in Munich, where the three worked together with the local Hoffmann Group on improving workwear sizing. “Parallel to this, friends told us that they had been banned from online shops for returning too many articles”, says Szeli recalling the origins of Presize’s AI-based idea.

In distinction to other options, Presize’s solution is integrated into the online shop as a web app, which opens a separate window giving shoppers the chance to enter details of their age, weight and size or upload a video of themselves via their smartphones. “It is enough to film themselves from all sides in jeans and a t-shirt”, says Szeli. Customers should then be able to use the size ID thus generated with all online fashion shops that employ the Presize app. According to Szeli, around 20 retailers, including sOliver, Keller Sports and Eterna, have signed up so far. For the three founders, their shop-in-shop approach is well ahead of the competition. “Numerous size assistants have to be downloaded as an app or, in the case of devices, ordered for home delivery – and that’s something many customers don’t want to do”, believes Szeli.

Second-biggest individual deal in ‘The Lion’s Den’
To raise capital for further growth, Presize founders Leon Szeli and Tomislav Tomov took part in the VOX start-up show, ‘Die Höhle der Löwen’ (The Lion’s Den), in October. And did so with success: judge Carsten Maschmeyer purchased 15 percent of the shares for € 650,000 – the second-biggest individual deal in the show’s history. But how is the working relationship between mentor and partner Maschmeyer working out? “Very well”, says a delighted Leon Szeli. In particular, Maschmeyer’s sales mindset and his network are very helpful for, “our team of technical nerds”. For Szeli, this ‘nerdiness’ is an advantage. As he puts it: “We don’t think in terms of needles and thread, our thoughts are data oriented.”

His verdict on the level of digitalisation and AI in the fashion business? “I have the impression that it was not until the corona pandemic that the last online retailers actually realised they need an online shop.” While big players, such as Zalando, Otto, Bonprix, H&M and Amazon, are masters of digital shopping methods, many fashion retailers, especially the smaller ones, still have a lot of catching-up to do. “In the long run, it will not be enough to simply evaluate customers’ order history.” +++

 

Header image source: Presize / “The Lion´s Den” (TV NOW)