A surge of artificial intelligence start-ups is targeting one of the retail industry's most persistent and costly challenges: online product returns. These companies are rolling out virtual try-on technology, enabling customers to visualize fit and style before making a purchase, which aims to reduce the likelihood of returns and protect retailer margins [1]. According to Ed Voyce, founder and CEO of AI startup Catches, advancements in AI have made it feasible for firms to offer realistic visuals to end users at a cost that delivers a return on investment [1].
The scale of the returns problem is significant. The U.S. National Retail Federation estimated that 15.8% of annual retail sales were returned in 2025, amounting to $849.9 billion. For online sales, the return rate was even higher at 19.3%. Gen Z shoppers, aged 18 to 30, averaged nearly eight online returns per person last year, driving this trend further [1]. Most returned items do not make it back to shelves and often cost retailers more to process than the value of the refund, making returns a multibillion-dollar issue that directly impacts profitability [1].
Retailers are increasingly adopting AI solutions to address this 'silent killer.' Guggenheim Senior Managing Director Simeon Siegel noted that proactively managing and minimizing returns can be a meaningful driver of business and profitability. While fit technology may never fully replicate the experience of trying on clothes in person, Siegel believes it will continue to improve and reduce returns over time [1].
Catches, for example, has launched a platform allowing users to create a 'digital twin' for virtual try-ons with 'mirror-like realism.' This technology, which incorporates the physics of fabric texture and movement, went live last month on luxury brand Amiri's website for a select range of clothes [1].
CONCLUSION
AI-powered virtual try-on technology is gaining traction among retailers as a solution to the costly problem of online returns. With high return rates impacting margins, industry leaders expect continued improvements in fit technology to drive profitability and reduce returns. The adoption of these tools signals a medium-impact shift in retail operations, particularly for online sales.