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November 16, 2017updated 20 Nov 2017 1:33pm

Delayed payment options will boost online conversion but also return volumes

‘Try before you buy’ online payment methods will drive conversion at a time when shoppers’ spend on non-essential items is squeezed, however retailers must be prepared for the onslaught of returns this will provoke – impacting product availability, margins and stock loss levels.

By GlobalData Consumer

A growing number of clothing & footwear retailers including H&M, Finery and Arcadia brands Topshop and Dorothy Perkins now offer a ‘pay later’ online payment option to encourage shoppers to purchase when they might not have the funds readily available.

‘Try before you buy’ payment methods often appear more straightforward as a short term solution in comparison to traditional more complicated and daunting credit accounts aimed at shoppers looking for credit over a longer period.

Delayed payment methods will break down barriers to purchase online and boost average order value, but retailers will be hit with a higher returns rate. Undoubtedly shoppers will purchase more readily, supporting volume growth, but once the realisation of paying for items sets in, a higher proportion of items will be sent back. Therefore, offering delayed payment options to consumers comes with risk. More items will sit in the warehouse unavailable to be purchased, there is a greater chance of stock being soiled and a higher cost of fulfilling and processing returned goods.

A recent GlobalData survey revealed that 52% of online shoppers often buy more items than they expect to keep when purchasing online, and ‘pay later’ options will only encourage this shopping mentality. This makes it essential for retailers to test delayed payment options on their own websites to measure the impact on their customers’ shopping behaviour, which will vary considerably based on target demographic and product type. Despite heavily promoting its new ‘Try before you buy’ payment method, ASOS has wisely restricted it to its app customers during the trial before potentially rolling the service out to all platforms – if the incremental sales are worth the increased cost of returns.

Returning goods purchased using the delayed payment option will be a more seamless process for shoppers, since the need to wait for refunds is void, but retailers will have a higher volume of items to process and quickly make available for sale once again, putting additional pressure on an already costly operation – particularly those which rely on outdated systems and fulfilment centres. While customer facing initiatives are at the forefront of retailer investment plans in 2017 and 2018, players introducing delayed payment methods must focus on enhancing back-end operations to reduce the time product is spent offline so sales opportunities are not missed. Retailers who are well placed to cope with processing returned goods will be the most likely to make a delayed payment service cost effective and successful.