AI Startups Tackle Retail's 'Silent Killer': Rising Product Returns

The retail industry is grappling with a persistent challenge: the surge in product returns, often referred to as the sector's 'silent killer.' As online shopping continues to grow, so too does the rate of returns, which significantly impacts retailers' profit margins. To address this, a new wave of AI startups is emerging with virtual try-on solutions that allow customers to visualize how clothing will fit and look before making a purchase. The U.S. National Retail Federation reported that 15.8% of annual retail sales were returned in 2025, totaling $849.9 billion, with online sales seeing a higher return rate of 19.3%. Gen Z shoppers, aged 18 to 30, averaged nearly eight online returns per person last year, according to the NRF. Most returned items do not return to the shelves, often costing retailers more to process than the value of the refund. Guggenheim Senior Managing Director Simeon Siegel emphasized the importance of using AI to proactively manage returns and reduce their frequency, noting that while virtual try-on technology cannot fully replicate in-person experiences, it is a significant step toward bridging the gap. Ed Voyce, founder and CEO of AI startup Catches, highlighted that uncertainty over fit is the primary reason for returns and abandoned shopping carts. Catches has developed a platform that creates a 'digital twin' for virtual try-ons with 'mirror-like realism,' recently launched on luxury brand Amiri's website. The platform incorporates fabric physics and material interaction with a moving body, distinguishing it from other models that Voyce claims 'just look pretty.' Catches is backed by LVMH's Antoine Arnault and built on Nvidia's CUDA platform. Voyce noted that the current technological landscape allows for cost-effective cloud-based visuals, making a return on investment feasible for brands. These AI tools are not only aimed at reducing returns but also enhancing the overall purchasing experience. As e-commerce faces headwinds from U.S. trade policies and rising costs, retailers are exploring a mix of technology and policy to protect their margins. While 82% of consumers consider free returns essential, the cost of providing them is becoming unsustainable for many brands.