By David Pendered
The burgeoning field of e-commerce is creating opportunities for new businesses and warehouses to handle the skyrocketing amount of items that buyers return, according to a new report by CBRE, a global real estate company.
The return rate for goods purchased in stores averages 8 percent. The return rate for goods purchased on-line ranges from 15 percent to 30 percent, CBRE reported, citing figures reported by The New York Times and Shorr Packaging Co.
For the 2016 holiday season, these e-commerce return rates will translate to values ranging from $14 billion to $29 billion in goods.
“[T]he shirts, shoes electronics and other goods that consumers don’t keep will be returned back through the supply chain in a very inefficient manner,” Blaine Kelley, senior vice president in CBRE’s Global Supply Chain practice, said in a statement.
“While this may appear to be an afterthought to our economy, it actually puts a strain on an already taxed ecosystem,” Kelly said. “A very manual effort to unpack, sort and store ensues and there is a cost.”
These costs create the opportunities for third-party logistics companies to process the returns, and more warehouse space to accommodate the returns, according to CBRE’s report titled, Holiday Stress: E-commerce and the Rapidly Rising Rate of Return.
Start with the 3PL issue. CBRE’s report observes:
- “With e-commerce sales and returns on the rise (15 percent annual growth rate) and many current distribution systems not optimized for the reverse flow, the need to develop a solid reverse logistics strategy is paramount.”
Some companies are handling the returns in-house. If they have a physical location, they may ask customers to return goods to that location. E-commerce companies that allow customers to ships goods back to the company likely will have to contend with either paying for the return shipping, or an unhappy customer if the customer has to pay for return shipping.
An alternative that companies are turning to are the third-party logistics companies. These 3PL firms are paid to handle the entire return process – from receiving and processing returned goods, to repackaging goods and getting them back on the market.
Pressure is mounting on e-commerce companies to devise return policies that keep customers happy. CBRE observes:
- “The expectation from consumers is for a seamless and inexpensive (free if possible) return experience. The top reason that in-store-only shoppers say they are reluctant to buy online is the perceived difficulty with the return process. And for e-commerce shoppers, a favorable return policy is key: Some 81 percent of shoppers are less likely to make additional purchases on websites that charge for returns. So it’s clear that a competitive return policy is a business imperative for any retailer competing in the e-commerce space. However, this service comes at a significant cost.”
Regardless of who pays the shipping cost, the returned goods are going to end up in a warehouse. And that creates real estate opportunities in providing the warehouse space.
The amount of such space is growing across the country, according to CBRE’s report:
- “For example, in Chicago, the largest industrial market in the country, 3PL users accounted for approximately 20 million square feet of leasing activity in 2014 and 2015 or 26 percent of the total leasing demand. Nationwide, it’s estimated that 3PLs occupy approximately 700 million square feet and have been growing at 3 percent to 5 percent annually.”
Companies do have other options, such as discarding the returned goods and taking a complete loss. Citing a story that appeared in 2015 in The New York Times, CBRE observes the returned good amount to:
- “[A]n estimated 2 million tons of unwanted and often undamaged goods—enough to fill 200,000 garbage trucks – are thrown away each year).”