It pinches here; drags there; the draping is wrong. These are some of the examples of the feedback a new crop of artificial intelligence apps might give a prospective customer trying on clothing ahead of a purchase, and in the process reduce the chances of a product being returned to a store.

Fashion retailers are increasingly turning to AI to solve the issue of rising product returns, a persistent drag on profitability and something many in the industry refer to as the industry’s “silent killer”.

A growing number of AI start-ups have emerged to provide virtual try-on technology, allowing potential customers to visualize fit and style before they buy.

While tech companies have attempted to solve online fit issues since the 2010’s, the rapid development of generative AI has finally made these applications good enough to meaningfully impact retailers’ bottom lines. 

The U.S. National Retail Federation late last year estimated that 15.8% of annual retail sales were returned in 2025, totaling $849.9 billion. For online sales, that number jumped to 19.3%. Gen Z is driving this trend, with shoppers aged 18 to 30 averaging nearly eight online returns per person last year, the NRF found.

Most returned items never make it back to the shelves and often cost the retailer more to process than the value of the refund itself. It’s a multibillion-dollar problem for the industry that’s eating directly into companies’ margins.

“Figuring out how to proactively use returns and then how to minimize them can be a meaningful driver of business and profitability,” Guggenheim Senior Managing Director Simeon Siegel told CNBC.

While fit technology will never be as good as trying something on in person, it’s a great way to bridge the gap, Siegel said. “It’s going to continue to get better, I think that’s going to continue to reduce returns.”

The primary reason for returns and abandoned shopping carts is uncertainty over fit, Ed Voyce, founder and CEO of AI startup Catches, told CNBC in an interview.

Catches has developed a platform that allows users to create a “digital twin” to try on clothes virtually with what it calls “mirror-like realism.” The application went live last month on luxury brand Amiri’s website for a select range of clothes.

Unlike other models that Voyce says “just look pretty,” the Catches platform incorporates the physics of fabric texture and how material interacts with a moving body.

“The reason we built Catches was to take advantage of a kind of confluence of technologies that is taking place right now to solve this issue effectively,” says Voyce, who founded the startup backed by LVMH’s Antoine Arnault and built on Nvidia’s CUDA platform.

While e-commerce has grown rapidly in recent years, with online shopping driving retail sales growth, the current U.S. trade policy under President Donald Trump has put a dampener on the sector which relies heavily on manufacturing in Southeast Asia. Across the price spectrum, retailers are struggling to maintain margins as costs rise and consumers become increasingly price sensitive amid inflationary pressures.

The online fast fashion player has been experimenting with virtual try-ons in partnership with deep-tech startup AIUTA, allowing prospective customers to see a piece of clothing on a range of body types, heights, and skin tones. ASOS, however, cautions that the tool is designed to give general guidance and that customers must still check size guides before purchasing. 

Shopify, meanwhile, has integrated startup Genlook’s AI virtual try-on app into its commerce platform, which it says “removes sizing doubts, boosts buyer confidence and drives higher conversion rates while reducing costly returns.” 

Tech giants like Amazon, Adobe, and Google have also created virtual try-ons in various shapes and forms, partnering with major brands to roll out the technology. 

From April 30, Google’s virtual try-on tech can be accessed directly within product search results across Google platforms, according to Google Labs’ website. 

As for Catches, it projects that its app can drive a 10% increase in conversions and a 20- to 30-times return on investment for brand partners. It focuses on luxury brands because of their higher price point. The startup hasn’t yet put a number on how much returns might decline with the use of its platform, but targets “massive reductions.”

“There are certainly companies that have absolutely seen benefits – figuring out how to quantify them is more difficult,” said Siegel. 

While the benefits are clear, the analyst cautions that AI is not a magic wand. Beyond fit, retailers are looking at AI for inventory management, customer targeting, and fraud prevention.

“All of those are really interesting use cases, as long as companies don’t abandon who they are,” Siegel says.

“What you sell is always going to be more important than how you sell, and so I just think remembering that will help dictate who wins and benefits and amplifies from AI versus who gets consumed by it.”

Software stocks have been hammered in recent weeks as investors worry about threats from artificial intelligence. In the startup world, Canva has been among the highest fliers due to its popularity with designers, but that market is showing vulnerability, with larger rival Adobe down 30% so far this year.

As Canva reckons with dramatic changes in the market, the design software vendor is getting acquisitive. The company said Monday that it’s purchased two startups — Cavalry and MangoAI — that stand to help it challenge Adobe.

Cavalry, a four-person startup, sells subscriptions to software for creating two-dimensional animations. MangoAI is a stealth-mode company, whose technology can be used for creating short videos for advertising. Terms of the deals weren’t disclosed.

Cameron Adams, Canva’s co-founder and product chief, told CNBC that customers have been asking what the company can offer in motion graphics. Cavalry, which Canva has used for its own projects, has gained attention among designers on social media as an alternative to Adobe’s After Effects for some work.

Canva will continue to operate Cavalry for people to use and buy independently, while also incorporating the animation technology into the core Canva product and the Affinity application for professional designers. Canva bought Affinity in 2024 and made it free in October.

Amazon, ByteDance, Google, and OpenAI all have employees that are paying customers, according to Cavalry’s website.

Canva plans to incorporate MangoAI into the Canva Grow advertisement generator, which is available through its business tier at $250 per person per year. The MangoAI technology is able to track video performance and make recommendations.

“There’s a whole bunch that goes into creating the right video,” Adams said. That includes “being able to cut stuff down, being able to repurpose content from other campaigns and put it together, being able to take a great call to action that happens at the end of one video and then append it to the hook that happens in another video,” he said.

“Analyzing all of that across your campaigns is the full vision of Canva Grow, and Mango will help enable that,” Adams added.

Canva said it ended 2025 with over $4 billion in annualized revenue, up 36% from a year prior. Adobe reported $6.2 billion in revenue for the November quarter, up 10%. Adobe’s market capitalization stood at $101 billion on Monday, while Canva said in August that it had been valued at $42 billion in a secondary share sale, before the recent plunge in software stocks.

Adams said Canva has seen instances of people directing generative AI models to create content such as slide presentations and social media posts. But AI can’t do everything, he said.

“AI is great at getting you to 80%,” Adams said. “That last 20% where you’re confident that you can push this piece of content out and truly represent your brand and speak to your audience and achieve the goals that you want to achieve is vital to have, and that last 20% is really tricky to do.”

Canva, which now has over 5,000 employees, is not currently raising a new funding round, Adams said.

“Our revenue growth has not stopped, our user growth has not stopped, and the quality of our product is getting better and better with the inclusion of AI,” he said.

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