Imagine if shops charged you full price just to try on a piece of clothing in their changing rooms. If you didn’t like the item, they would issue a refund in a few working days.
It would feel completely unnatural, but that’s the way online retail has worked for years. You buy without knowing whether the item will fit you, and it’s your finances that are put on the line while you make up your mind.
But that is beginning to change. Online shops are adopting “try before you buy” models, where the consumer pays nothing upfront, or the payment is broken down into smaller, more manageable chunks.
Amazon Prime Wardrobe, Klarna and Laybuy are some of the world leaders in the trend for delayed payment with online purchases. This is how these models work, and what’s in it for both the retailers and their customers.
How it all works
The try before you buy model is simple: a customer orders a product, the retailer delivers it, and the customer has a fixed time period to decide whether they want to keep the item or return it. Only if they decide to keep it does the retailer charge them.
What varies is how much time retailers give you to make up your mind. With Amazon Prime Wardrobe, launched in the U.K. at the end of October, Prime customers have seven days to choose what to return. Buy something through Klarna, which works with
Laybuy takes a slightly different approach. The New Zealand-based company which arrived this year in the U.K. gives customers the chance to pay only a fraction of the cost upfront. Whether a customer chooses to buy in store or online, they’re given a payment plan which breaks the cost down into six weekly interest-free chunks.
The appeal of try before you buy
Delayed payment is an attractive option for consumers. They receive all the convenience of having an online shop delivered straight to their door, being able to try clothes on in the comfort of their own home, and can easily return items they don’t like or don’t fit, all at no cost to them.
One of the downfalls of online shopping is no matter how good a photo or video of the product, the customer can’t tell if they will like the item until they see it in real life.
“This always came up consistently in customer feedback,” said Rob Merry, lead for Amazon Prime Wardrobe in the U.K. “People want to see a product in person, because of the size and the fit. They want to appreciate its look and feel.”
Customers are also given the luxury of time to decide. In a shop changing room, you’re under pressure to make a snap decision. Being given anywhere from a week to a month to decide whether you like the products means you can weigh up your options and seek second, or even third and fourth, opinions.
Finally, consumers are able to manage their money a little better when the onus isn’t on them to pay upfront. “The try now, buy later proposition breaks down the barrier to purchases,” said Sofie Willmott, senior analyst in retail at Global Data. “It eliminates the issue of not having the funds available.”
Klarna’s chief commercial officer, Michael Rouse, summed up the benefit of these models for retailers: “What we are trying to do is drive conversions and drive better shopping experiences.”
Merchants’ conversion rates increase as consumers see their purchases as risk-free. They have nothing to lose by ordering the items that have been in their basket for ages, if they can return the products without having paid a thing.
“If you know you do not have to pay for the item for up to 30 days, then you are more likely to buy there and then,” Willmott, the retail analyst added.
Basket sizes also grow, increasing anywhere from 20-60% according to Klarna and Laybuy, as shoppers feel unrestricted by their budget. They can add multiple sizes of the same piece of clothing, if they’re unsure of fit, knowing they won’t be charged for all the products and will only pay for the ones they decide to keep.
“Regular customers who usually buy similar things are starting to experiment with new brands and new styles - they’re using it as a way of shopping risk-free,” said Amazon Prime Wardrobe’s U.K. lead.
Who’s using delayed payment options?
It’s no surprise that the service appeals to young shoppers, who prefer to buy online rather than in store. According to Global Data’s research, more than a quarter of 16-34-year-old online shoppers have used a credit option in the past year.
But these payment models can work for customers across the board. Klarna’s chief commercial officer explained that the try before you buy approach has been helpful for people with disabilities who might not be able to shop comfortably in a bricks-and-mortar store. Try now, pay later means their bank accounts aren’t penalized for not being able to try on the items in store.
Amazon and Laybuy have both seen that time-poor parents are big adopters of their service, too. One of Prime Wardrobe’s first orders turned out to be from a busy mother who saved time by buying three pairs of the same children’s shoes, in three different sizes. Similarly, a mother thanked Laybuy for helping her to break down the cost of buying her children new winter coats, something she couldn’t have afforded if she had to pay the upfront cost all at once.
The pitfalls of try before you buy
Retailers and consumers are both embracing these delayed payment services. But that’s not to say that there aren’t potential dangers involved.
“The debt issue is the main drawback for consumers,” said Sofie Willmott, retail analyst. Consumers should keep on top of their finances, otherwise they risk missing payment deadlines and racking up debt. To help its customers, Klarna sends reminders to its customers before their payment is due.
Laybuy manages to avoid this obstacle completely. “Our users do not get into a debt spiral,” said its co-founder and managing director, Gary Rohloff. Instead, they run a credit check when customers first sign up and place a spending cap from £60-£600 based on their credit score, so they’re encouraged to keep within their means that way, and of course the weekly payments are interest free.
The hurdle for retailers with try before you buy is that they could end up being hit with a glut of returns. In a time when fast fashion moves incredibly fast, they need to be cautious that the items can still be sold at a profitable price if they’re returned. They need to ensure they have an efficient and quick returns process in place to be able to cope with any possible uptick in returns.
The future for try before you buy
The try before you buy approach offers convenience and flexibility. And it’s becoming an consumer expectation, not just an added bonus, to be able to order items, try them on for size, and only then pay for what they want to keep.
With thousands of retailers already offering their online customers a try now, pay later option, it’s likely next year will bring many more on board. But it’s not only the fashion industry where this model can make a difference.
Laybuy’s managing director, Gary Rohloff, emphasized that in New Zealand they’re working with all sorts of companies, specializing in homeware, toys, and even health and fitness.
Expect 2019 to bring even more growth of the try before you buy model in the fashion industry, but also to spread to many more businesses in the consumer market.
