NEWPORT BEACH, CA—Third-party logistics operators and facility owners are benefiting from a rapidly rising rate of product returns as many retailers outsource their reverse-logistics operations to cut costs and gain maximum efficiencies, according to a recent report from CBRE. As GlobeSt.com recently reported, reverse logistics is a rising concern as the percentage of online returns grows with the percentage of online shopping, and whoever solves this problem is a genius, CBRE senior managing director Kurt Strassman told us.
An earlier report from the firm showed that as e-commerce claims an increasingly larger portion of holiday retail sales, retailers' efficiency in limiting and handling returns of merchandise bought online—which could amount to as much as $32 billion this year—will make or break the holiday season for many. David Egan, CBRE global head of industrial and logistics research, also recently told us, “Speed and efficiency in processing e-commerce returns, with an eye toward preserving as much value of the merchandise as possible, often separates the top-performing retailers from the not-so-successful ones in the weeks after Christmas.”
As a result, many retailers are leaning on 3PLs to help them out of the bind. CBRE Research estimates that 3PL users occupy 700 million square feet of warehouse and distribution space in the US and have been growing by 3% to 5% annually since 2013. GlobeSt.com was unable to reach Strasmann before deadline for his predictions on how much 3PLs are expected to grow in 2018.
Product returns comprise 8% of total retail sales, but are much higher for e-commerce sales, says CBRE—as high as 15% to 30%, depending on the product type and peak during the holiday sales season. Adobe has forecasted that online sales would increase by 13.8% in the 2017 holiday season to $107 billion, which could result in up to 32 billion worth of returns.
Also, returned merchandise adds significant costs to retailers and distribution networks that are not optimally equipped for the reverse flow of inventory. It is estimated that returns sold at discount or not resold cost retailers 4.4% of total revenue each year. As Strasmann told us, “These returns are a big drain to these companies; they have to deal with shipping costs, re-warehousing the merchandise and reselling it. A lot of the merchandise just goes to the dumps because it's the most efficient way for companies to get rid of it.”
As 3PLs beef up their presence in the industrial real estate sector, Strasmann suggests that one solution to the problem of reverse logistics is for e-commerce merchants to offer two different pricing models: a higher one for the option of returns and a lower one for no returns. CBRE says another solution is improved and expanded supply-chain networks, creating “tremendous industrial real estate opportunities” as users add more warehouse and distribution centers to support the reverse flow of inventory.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
