A surge of artificial intelligence start-ups is addressing one of the retail industry's most costly challenges: product returns, which amounted to $849.9 billion in 2025, according to the U.S. National Retail Federation (NRF) [1]. The returns rate for annual retail sales was 15.8%, with online sales seeing an even higher rate of 19.3% [1]. Gen Z consumers, aged 18 to 30, averaged nearly eight online returns per person last year, further exacerbating the issue [1]. Most returned items do not make it back to shelves and often cost retailers more to process than the value of the refund, directly impacting profit margins [1].
AI start-ups are deploying virtual try-on technology to help customers visualize fit and style before purchasing, aiming to reduce uncertainty and minimize returns [1]. Ed Voyce, founder and CEO of AI startup Catches, explained that advancements in generative AI have made these applications cost-effective and impactful for retailers' bottom lines [1]. Catches recently launched its platform on luxury brand Amiri's website, allowing users to create a 'digital twin' and virtually try on clothes with 'mirror-like realism,' incorporating fabric physics and movement [1].
Industry experts believe that proactively managing and minimizing returns can significantly drive business and profitability [1]. Guggenheim Senior Managing Director Simeon Siegel noted that while virtual fit technology may never fully replicate in-person try-ons, it is an effective bridge and is expected to continue improving, further reducing returns [1].
Retailers are increasingly adopting these AI solutions, recognizing the persistent drag that returns place on profitability and referring to the issue as the industry's 'silent killer' [1].
CONCLUSION
AI-driven virtual try-on technology is gaining traction among retailers as a solution to the massive returns problem, which cost the industry $849.9 billion last year [1]. With generative AI advancements, these tools are expected to improve further, potentially reducing returns and boosting profitability [1]. The market impact is high as retailers seek to address this persistent challenge.