Online Returns Are Boosting Retail Demand

Online returns a creating more demand for industrial warehouse space located near population centers. According to research from CBRE, items bought in stores have an 8% return rate, while items bought online have a 15% to 30% return rate. Return rates are increasing as online shopping rates increase. Last year, Southern California online retail sales hit $352 billion, a $3 billion year-over-year increase. At the same time ecommerce-related industrial deals in Southern California increased 74%. The report attributes the increase almost entirely to online sales activity.

“As ecommerce continues to pick up, returns will increase in similar ratios,” Kurt Strasmann, executive managing director of CBRE’s Orange County and Inland Empire operations,” tells GlobeSt.com. “It’s so easy to buy multiple items and return whatever you don’t like at really no cost except shipping fees.  The current policy provides consumers with the ultimate flexibility. Therefore, this buying/returning culture is now built into consumers’ thought processes and expectations when buying online. Until ecommerce companies start charging additionally for returns, we expect this trend to continue.”

Returns play such a big role in warehouse demand because ecommerce companies need a place to store the goods as they are returned and rerouted to the appropriate warehouse. “The increasing volume of returns is increasing the need for additional space within facilities,” explains Strasmann. “All returned items need to be stored, sorted, repackaged and disposed of eventually. Think about it: if 20% of items purchased online are returned, those products need a home while the provider figures out what to do next. The result equates to needing more square footage short term.”

While there is already record industrial demand in Southern California and a severe supply shortage, the reverse supply chain logistics is putting more pressure on the already tight market. “It makes a tight market that much tighter,” adds Strasmann. “Whether the ecommerce company handles the returned product or their third-party logistics, one of them will have to allocate space for the returns. Therefore, expect vacancy on the industrial side to remain extremely challenging.”

Ecommerce users are also trying to cope with the uptick in returns. “Some ecommerce companies are setting up separate facilities, some have their third-party logistics companies handling the extra volume, some allocate existing floor space to handling returns, some throw the product away, some dispose via liquidators and so on,” says Strasmann. “No one has a great solution yet.  It’s an ongoing and very expensive problem many ecommerce-related firms as well as lots of consultants are trying to solve.”