New Capital Expected to Target Challenged Reverse Logistics Field

Total online holiday sales are forecast to jump by 40% this year to $234.9 billion. Of those holiday purchases, as much as $70.5 billion are expected to be returned, according to CBRE. That could create challenges for retailers as a surge of products are pushed back into the supply chain—a process commonly known as reverse logistics.

Unfortunately, for retailers returns are not the most cost-effective of processes. Reverse logistics costs amount to 59% of the original sales price of the item, CBRE says. 

Reverse logistics will play an increasingly important role in the industrial space as e-commerce sales continue to flourish. They will likely backfill the class B industrial space left behind by companies that want to upgrade to tier one buildings, for starters. CBRE estimates that as much as 400 million square feet could be used to process returns over the next five years.

But to understand precisely where reverse logistics sits in the supply chain, there needs to be greater insight into its abilities—and limitations. Participants in CBRE’s weekly  podcast tackled these subjects, while also predicting a future in which new capital flows into this industrial segment.  

John Morris, executive managing director, Americas Industrial & Logistics and Retail Leader for CBRE, noted that the returned item could go back to any number of places, including the store, the warehouse, the product goods company that marketed it or even to the manufacturing. 

With people giving goods versus vacations or events as gifts this holiday season, the returns could proliferate.

“It’s an environment this year that’s going to be the most challenging ever,” Morris said. “So the less well-defined reverse supply chain going under that stress test this year is going to be a very interesting paradigm this holiday season.”

While there may be decades of data to help guide supply chain volumes, the reverse supply chain is “completely unforecast and unplanned,” Morris added.

Sid Brown, the CEO of NFI, a global supply chain solutions company with locations across North America, said one of the biggest problems with the reverse supply chain is a shortage of labor.

“When we’re talking about reverse logistics, which is a very complex part of the supply chain, it is very labor-intensive,” Brown said. “And so, therefore, it puts further pressure on the users to be able to figure out where they should locate their facilities based on labor availability.”

Even with retail and industrial uses continuing to merge, 80% of customers would instead return an item to the store, according to Morris. He cited another survey where 96% of shoppers said they’d shop with a retailer again if they have a satisfying reverse logistics experience, which highlights the importance of the returns experience.

“I think the next 10 years we’re going to see one of the biggest placements of investment capital innovation in enabling the customer to do all of that [buy and return] from wherever they want,” Brown said.

Brown expects much of this logistics infrastructure to be farmed out. He says third-party logistics (3PL) firms can invest in the tech to scale up supply chains.

“I think the capital coming into this space, the efficiency and effectiveness and scale that’s developing, particularly in the 3PL space, begins to understand mitigation and effectiveness better,” Morris said. 

In the long term, Morris sees new marketplaces, new providers and new software creating one evolving, never-ending supply chain. “We’re a long way from that,” he said. “But it’s a business that develops more quickly in this age of tech than maybe other businesses have developed and matured [in the past].”