september 2017 IMPERFECT FIT AND THE $100 BILLION COST OF RETURNS HOW FITS ME SOLVES THE CHALLENGE OF FIT IN THE DIGITAL MARKETPLACE

september 2017 IMPERFECT FIT AND THE $100 BILLION COST OF RETURNS HOW FITS ME SOLVES THE CHALLENGE OF FIT IN THE DIGITAL MARKETPLACE

EXECUTIVE SUMMARY ONLINE SALES WITHIN THE FASHION INDUSTRY ARE DRIVEN BY CONSUMERS WHO EXPECT THE RIGHT THING, FOR THE RIGHT PRICE AND AT THE RIGHT TIME (USUALLY MEANING NEXT DAY DELIVERY). THIS NATURALLY COMES WITH ITS OWN CHALLENGES AROUND SIZE, FIT AND STYLE PREFERENCE. Returns are a huge expense for online retailers in the U.S. costing a total of $107 billion lost in returns a year (1). In 2015, shoppers in the US returned 30% of all apparel and footwear items purchased online, with a small number of logistic firms handling the majority of these returns (2). While a recent survey suggests that a positive returns experience can attract new customers (3), the process is a waste of resources which reduces retailers bottom line, incurs significant environmental costs (4) and undermines the hard earned goodwill and trust of customers. Removing the physical store element naturally reduces the level of contact between the shopper and retailer. An increase in the number of purchases made online can also reduce the understanding retail businesses have of their customers and the differences between various consumer groups as they become more abstract for some they are simply cookie IDs on a computer system. CONNECTING THE DOTS This report draws on qualitative research conducted by Fits Me in 2016; as more shoppers increase how frequently they shop online, they also develop distinct behaviours as they would in a physical retail space. Understanding what these are can provide retailers with valuable information that will help them keep shoppers happier. Online apparel, footwear and accessories expenditures are forecast to grow by 39% over the next 4 years to reach $96.41 in 2020 (5). Fits Me expect that getting fit right will become more important than ever, making this paper essential reading for anyone with a stake in the fashion industry. 88% OF CONSUMERS REPORT A FEELING OF FRUSTRATION WITH REGARDS TO SIZING INCONSISTENCY. BOTH MEN AND WOMEN HAVE DEVELOPED FIT PSYCHOLOGIES; MEN WANT AN EFFICIENT, STREAMLINED EXPERIENCE, WHILST WOMEN PREFER TO AVOID THE COMPLEX ISSUE OF SIZE. 1 Internet Retailers, December 31st 2016 & Statista.com https://www.statista.com/statistics/272391/us-retail-e-commerce-sales-forecast/. 2 Internet retailer, https://www.internetretailer.com/2015/12/31/ringing-new-year-rush-online-returns. 3 Endicia http://www.endicia.com/ landing-pages/return-to-sender-infographic. 4 J. Edwards CARBON IMPLICATIONS OF RETURNING UNWANTED GOODS ORDERED ONLINE 5 https://www.statista.com/statistics/278890/us-apparel-and-accessories-retail-e-commerce-revenue/

THE DIGITAL CHALLENGE FOR FASHION Retail fashion is the fastest growing e-commerce sector in a digital world where half of all purchases are now made online. As the most popular e-commerce category, the U.S. has witnessed a 11% increase in online sales of apparel and accessories in the past year alone(6). Yet serious obstacles threaten further growth; one of these being the ongoing issue within sizing. The legacy of traditional sizing has led to an ever increasing $62.4 billion mountain of returned apparel and footwear purchased online. While a recent survey suggests that a positive returns experience can attract new customers(7), the process is a waste of resource which has reduced retailers bottom line, incurred significant environmental costs(8) and undermined the hard earned good will and trust of their customers. It s a wake up call. To ensure future success, fashion retailers must make sizing in the online world easier for their customers to translate. Fash-tech (tech start-ups that are focused on the fashion world) needs to answer the challenge that has followed the industry since the birth of e-commerce: the problem of fit. Online apparel, footwear and accessories expenditures are forecast to grow by 39% over the next 4 years to reach $96.41 in 2020(9). statista.com https://www.statista.com/statistics/278890/us-apparel-and-accessories-retail-e-commerce-revenue/ Endicia http://www.endicia.com/landing-page/return-to-sender-infographic 8 J.Edwards CARBON IMPLICATION OF RETURNING UNWANTED GOODS ORDERED ONLINE 9 Verdict retail press centre, 2015 6 7

THE PROBLEM WITH SIZE WITH SO MANY ITEMS AVAILABLE ONLINE, THERE IS CLEARLY A RISK THAT SHOPPERS WILL FIND IT HARD TO FIND THE GARMENT FOR WHICH THEY ARE LOOKING. HOW PREVALENT IS THE ISSUE? Did you find it annoying or irritating to have to search through a lot of clothes to find the items you want? 52% 50% 54% Total - 2005 Male - 940 Female - 1065 24% 21% 26% 15% 18% 12% 6% 5% 6% 3% 5% 2% ALWAYS OFTEN SOMETIMES OCCASIONALLY NEVER Shopping for clothes can be a gamble. Sizes vary widely across brands, making the customer waste time and effort searching for fit rather than being able to choose purely on style. Additionally, almost half of online consumers feel annoyed by the amount of clothes they have to filter out before finding what they want. The problem originates with the antiquated system of size. Developed in the 1940s when the American National Institute of Standards and Technology used US Airforce women to produce a series of universal measurements, its rigid definitions have been problematic from inception. These measurements, based on a primarily young, healthy demographic, were eventually abandoned by the US Department of Commerce in 1983. As brands evolved they were replaced by more flexible measurements, designed to suit the needs of different demographics in a more fragmented market. Still the concept of size remains. Metrics S, M, L, continue to hold iconic meaning for the customer as a way to determine fit and provide symbolic reassurance (or not). With 88% of respondents in a recent Fits Me survey frustrated by sizing inconsistency and almost four in five preferring retailers to only show items that fit, there is increasing pressure for a fit filter to help consumers (10). It s clear this failure to communicate fit through size undermines the retailer s ability to answer the basic question behind any apparel purchase: will it fit? If a clothing retailer or brand showed you only items that it knew would fit you the way you like, would that help you choose? Yes No Unsure 78% 79% 78% 18% 4% 5% 16% 3% TOTAL - 2005 MALE - 940 FEMALE - 1065 19% 10 Fits Me qualitative research Feb 2016

GENDER: DIFFERENT ATTITUDES, SAME PROBLEM The issue of fit is a universal one, but it affects men and women (11) in clearly differentiated ways. Fits Me sets out to explore the attitudes and behaviour of both males and females, younger and older, towards online clothes shopping. Their experiences helped Fits Me develop a radical new approach. In the qualitative study it was clear that distinct fit psychologies have developed for both men and women. However, while their core needs were different, both groups felt current digital offerings exasperated the frustrations they experienced when buying fashion through e-commerce portals. 11 Fits Me qualitative research Feb 2016

WOMEN MEN I DON T LIKE SHOPPING WITH NEW BRANDS BECAUSE IT TAKES TIME TO ANALYSE THEIR SIZING CHARTS TO MAKE SURE THAT THE ITEM I FANCY WILL FIT. I M AN 8 IN M&S BUT A 12 AT ZARA. YOU CAN T TRUST THE NUMBERS WHEN YOU SHOP ONLINE. I CAN T IMAGINE BUYING A JACKET ONLINE. YOU NEED TO TRY IT ON TO MAKE SURE IT FITS. THE WHOLE THING S TOO COMPLICATED. THERE S JUST TOO MANY BRANDS - I USUALLY STICK TO WHAT I KNOW. YOU HAVE TO ORDER A COUPLE OF SIZES TO GET THE ONE YOU WANT.

WOMEN: THE NUMBER GAME For women, clarity and support is key. Fit is a complex, multi-dimensional issue for this group, with body size likely to change with age or after childbirth. This evolution can create anxiety and confusion as women move from one life cycle to the next. Brands that lessen the confusion around size, and support women during the online shopping experience will inevitably win their loyalty. Women, young and old, are comfortable with digital commerce. Older women especially enjoy the privacy afforded to them by digital commerce, seeing it as an opportunity to shop in peace. It is only when confronted by DOESN T HAVE A DEGREE IN CLOTHES SIZING AND DOESN T WANT ONE. SHE BUYS BRANDS THAT MAKE HER LIFE EASIER. JEANS NEED TO BE A RELAXED FIT BECAUSE HER WORLD IS ABOUT MULTI-TASKING. the number game when a consumer discovers they are a 6 in one store and a 10 in another that the digital shopping experience becomes a frustration. The industry s answer has been to offer free returns. While women are generally content with this system, it has created substantial logistic and financial costs for the retailer. There is also a reputational penalty, with 85% of women reporting disappointment when clothes don t fit. A wrong guess, a returned item, a lost customer digital retailers ignore fit at their peril. SHE KNOWS WHAT SHE WANTS; IF FIT BECOMES A GUESSING GAME SHE LL WALK AWAY. LIKES HER SMART CLOTHES TO FIT.

MEN: THE NEED FOR SPEED For men, efficiency is king. They apply a more systematic approach to shopping, honing in on what they need, and want a streamlined experience to reduce their time and effort. Counter-intuitively, this makes men wary of online fashion. The combined risk of a poor fit and time wasted returning an item works against their need for speed in any shopping experience. Digital retail also risks sabotaging just-in-time purchases, where men buy clothes they need to wear almost immediately. Worse, online retailers present men with an encyclopaedic choice of apparel. This is often irrelevant to the male buyer who will not purchase wardrobe staples unless confident they will fit. This creates an additional and unwelcome time barrier for men as they trawl through sites, searching for what they know. Both sexes experience disappointment when shopping digitally for fashion, albeit for different reasons. Women need the digital world to talk to them, not to the numbers. Men need a streamlined offering, taking them to what they need in the shortest possible time. However, both groups are driven by a single driving force: the psychology of fit. IT S PARTY TIME AND HE NEEDS CASUALS THAT DO THE JOB. LIKES T-SHIRTS THAT FIT BUT NEVER TOO TIGHT. NEVER BROWSES, JUST HUNTS DOWN THE CLOTHES HE NEEDS. HATES A BAD FIT AND IS AFRAID TO EXPER- IMENT OUTSIDE THE BRANDS HE KNOWS.

OVERWHELMING RETURNS These unresolved problems for the consumer have created serious issues for the fashion industry, including ever-increasing logistic, reputational and financial costs. Below are some of the burdens placed on the industry because of poor fit. Fashion retailer ASOS Chief Executive Nick Robertson said a 1% fall in returns would immediately add $16 million to the company s bottom line (13). It is clear the problem of fit needs to be solved for both retailers and consumers, but how? 1 2 3 Fit-related returns cost fashion retailers millions in lost revenue, shipping and processing costs. 4 5 Lack of accuracy in fit reduces customer satisfaction and potential lifetime value of the consumer. Returns are damaging to the environment, increasing congestion and CO2 emissions. Excessive returns lead to higher inventory, warehousing and delivery costs. Current return rates are around 30%, but climb up to 50% for expensive items. (14) PAST ATTEMPTS HAVE FAILED Retailers have been proactive in trying to break the barrier of fit between fashion brands and shoppers. There have been attempts to re-establish a universal metric for size, but these have largely failed with the concept becoming increasingly out-dated in an age of personalisation and me. Retailers have also been compiling vast quantities of data about customers to help them find fit, but this information is fragmented across the industry and unable to provide an easily accessible single view of the individual, which allows the customer to translate size across different brands. Left with no alternative, e-tailers are forced to continue their strategy of free returns, despite the cost and scale of returns threatening the long-term profitability of Europe s largest online fashion retailers, including ASOS in the UK and Zalando in Germany. Until now. Recently some of the most experienced and brightest minds in fash-tech have developed new tools to overcome the challenges of size. These innovative products pivot around a core belief: the fashion industry is evolving from the era of mass fashion into the age of me fashion. 13 Fits Me qualitative research Feb 2016 14 Internet retailer, https://www.internetretailer.com/2015/12/31/ringing-new-year-rush-online-returns.

IT S TIME FOR A BETTER FIT There is a new way. Tools developed in the fash-tech community are already disrupting e-commerce in the retail sector, allowing customers to discover fit across the market and bringing the consumer and retailer together. This evolution can be expressed with one simple, unique proposition: It is time to turn mass fashion into me fashion. Based on this core principle, simple, unobtrusive products have started to bring me fashion to the fashion industry. Easily integrated into any e-commerce platform, they are fundamentally changing the relationship between consumer and retailer, enabling customers to find clothes that fit, wherever they shop online. These tools are already being used successfully by leading U.S. fashion retailers, acting as a catalyst to fewer abandoned carts, fewer returns, and higher average transaction value. Thomas Pink reported customers using Fits Me typically resulted in 21% higher sales. With 85% of customers saying they return to a brand because of fit (15), there are also substantial opportunities to increase loyalty. Additionally, by removing the uncertainty of size, me fashion opens up the possibility of greatly increased gifting between family and friends within the fashion sector. Future success for fashion brands rests upon the successful transition from mass fashion to me fashion. To thrive in the future, more and more companies are taking their first steps to a truly personalised shopping experience, creating value for both retailer and consumer in the digital marketplace. RESULTS OF AN IMPROVED FIT: Increased conversions Me fashion gives the shopper the confidence in style and fit to click buy. This makes your customers happy, eliminates multiple purchases and reduces the cost of returns. Increased transaction value When customers are confident your clothes fit and flatter them they ll buy more. After all, a great pair of Jeans always needs a great shirt. Decreased number of returns Pin point accuracy of fit can lead to a 20-70% drop in fit-based returns. THE VALUES EMERGING FROM PERSONALISED ONLINE SHOPPING EXPERIENCE: Increased loyalty Me fashion gives the shopper the confidence in style and fit to click buy. This makes your customers happy, eliminates multiple purchases, and reduces the cost of returns. Increased number of positive reviews When a jacket arrives and fits perfectly, it s a fantastic feeling. Loyal customers love to share their successful shopping experiences with others. Increased life time value A great retail experience inspires confidence. More trust equals greater loyalty and increases repeat purchases. 15 Ed Gribbin, Edited

FIT NO LONGER BEING AN ISSUE The evolution of mass fit into me fit is at the forefront of the revolution within fashion retailing. Tools that embrace this proposition help support the consumer and streamline their online experience to make it better, helping the industry solve one of their greatest online challenges the problem of perfect fit in the digital world. Further details of the survey answers used here are available in the Knowing Them, Knowing You white paper.

Our knowledge can be yours. Understanding the choices and fit profile of your customers lets you tailor a shopping experience that suits them. Make their time with you a personal, rewarding experience they ll want to return to. Visit Fits.me to book your demo today.