The premise of increased e-commerce activity leading to increased returns, or reverse logistics activity is more than a trend. In fact, it is reality, and not an entirely new reality either.
That was made apparent in a report recently issued by industrial real estate firm CBRE, entitled “Holiday Season Heightens Challenge of Online Returns,” which includes several notable takeaways that speak to both the financial and logistics commitment the returned orders require.
CBRE, with help from Optoro, a provider of returns optimization services for retailers and brands, explained in the report that while the traditional return rate for goods purchased in stores in around 8%, that rate jumps to between 15%-to-30% for purchases made online.
“The maximum forecast volume of returns of online merchandise directly correlates to the volume of online sales,” said David Egan, Global Head of Industrial & Logistics Research, CBRE. “eMarketer predicts that online sales will increase by more than 16 percent this holiday season to roughly $123 billion. Thus, we predict that returns will increase by a similar rate to a maximum of $37 billion [topping $32 billion from a year ago].”
Another key finding in the report, cited by Optoro, was that reverse logistics can account for an additional 15-20% more square footage worth of warehouse space than the typical outbound supply chain, given that processing returns is both labor- and space-intensive. And as time goes on, Optoro said that percentage is likely to rise.
“We believe that as the total volume of returns grow, the logistical challenges and needs of returns will grow as well,” said Joe Hsu, Senior Director of Solutions, Optoro.
What’s more, the report explained that returns place enormous stress on and add significant costs to retailers and distribution works that are not optimally equipped for the reverse flow of inventory. And it added that due to this situation it’s estimated that returns either sold at discount of discarded cost retailers 4.4% of total revenue per year.
“Retailers and brands should deploy returns optimization platforms to streamline the returns process - routing products to the most profitable channel as quickly as possible, with as least amount of touches as possible,” said Hsu. “Optoro’s technology uses machine learning and data analytics to quickly determine what to do with each returned item, reducing financial, operational, and environmental waste.”
Given the increasing and heightened state of online returns activity, the report said it stands to reason that 3PL operators and owners of 3PL facilities are poised to benefit, as many retailers look to outsource their reverse logistics operations in order to reduce costs and gain maximum efficiencies.
Regardless of retail sector, the problems retailers face by increasing online returns create what the report called serious business concerns. And it noted that efforts made by retailers to make the return experience seamless as possible for consumers has led to immense complexity on the back end.
This is where the importance of supply chain and industrial real estate’s importance takes on an even larger role, as the right solution varies due to a retailers’ service promise, margin leverage, and existing infrastructure.
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