1. Corporate Finance

Why Building Unique Customer Experiences is the Silver Bullet for Online Shopping

Calling the pandemic and its aftermath a black-swan event at global scale is an understatement. Besides being a personal tragedy and suffering for millions, it dislocated the world order along several vectors, some irretrievably. As we put it behind us, it opens vast opportunities for the bold and decisive. One of the winners, if such a word is appropriate in this context, is online shopping. The online trend, enabled by emerging digital technologies and busy lifestyles, was already racing ahead. The pandemic leap-frogged it by an additional five-plus years according to McKinsey. Online expanded its reach among existing users and converted several new ones to the ease and convenience of online commerce.

While online commerce has many advantages, it’s also beset with large problems such as high return rates, low conversion rates, and a negative environmental footprint. In some cases, these problems even threaten to upend the success of entire industries, making it imperative that solutions be found quickly. Companies that take prompt and definitive action can survive and thrive during the current flux of post-pandemic opportunity. To illustrate, we cite the example of the $2 trillion apparel industry, and how the key may lie in providing new and unique customer experiences (CX).

Over the last three years, the apparel industry has been ravaged like few others, with extensive business failures. A winnowing of the industry has taken place, opening an opportunity for the survivors, new or restructured companies and, of course, the well-funded large players. The message that has emerged is clear: vigorously accelerate digital and online commerce with effective and innovative consumer experiences, or wither.

In apparel online commerce, which includes e-commerce and buy online, pick up curbside/in-store, the average return rates are 30 percent to 40 percent, and the conversion rate is 2 percent to 3 percent, which is the flip of the industry’s in-store performance with returns of ~9 percent and conversion of ~25 percent. This translates into ~$95 billion in waste cost due to returns and tens of billions in lost sales.

Needless to say, despite its potential, online commerce creates a huge financial drag on the apparel industry. Additionally, the “dead inventory” trapped in high return rates, the avoidable shipping back and forth, and simply producing excess un-needed merchandise creates a large negative impact on sustainability. Arguably, these are the three most expensive problems in online apparel retail. As online increases, it threatens the viability of entire companies.

A main contributing cause for these problems is the deficient online user experience that provides no ability for the shopper to see how a garment looks and fits on themselves before buying. This leads to lack of confidence in their purchases and the damaging practice of “bracketing” — i.e., ordering multiple sizes and colors of the same garment to try them out, keeping one and returning the rest. In a physical store, the shopper has herself, a mirror and the entire collection of garments in styles, colors and sizes. The shopper is able to see herself in the various garments before making a purchase decision. This results in the shopper buying something more than 25 percent of the time and walking out with a selection she truly likes, and returning it fewer than 9 percent of the time.

This suggests if online shoppers can also see themselves in what they’re buying, online return and conversion rates will start approximating in-store numbers. The good news is that’s now possible. After two decades of trying, the support technologies have finally improved sufficiently to create online virtual fitting rooms which duplicate the real-life fitting room customer experience in all details.

A couple of leading virtual fitting room solutions have taken the 3D shopper experience even further and allow the shopper’s avatar to try out different sizes and see simulated 3D “wear” for greater personalization of choice and preferences. This provides online the closest experience to in-person shopping. What’s next? Touch and feel? For that, you’ll have to wait several years. In the meantime, these fun and unique capabilities obviously result in greater customer satisfaction and brand loyalty and trust, and is a great differentiator in saturated retail markets.

Unique and innovative CX solutions can produce transformative results. Superior and enriched customer experiences for the shopper have resulted in sales increases of 70 percent and conversion rates increases of 80 percent while reducing returns by nearly two-thirds at some mature deployments, and continue to improve as the solutions get smarter and more intelligent with greater use.

Dave Sharma is the co-founder and CEO of Perfitly, a cutting-edge size recommendation and visualization platform for fashion e-commerce.

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