Dealing With Holiday Returns That Need 20% More Warehouse Space
“It is a big challenge,” Mark Russo of Savills says about how retail companies are handling the post-holiday return season.
Post-holiday returns are creating a logistical challenge for online retailers. When goods purchased online are returned, they make their way back through the supply chain—known as reverse logistics—and into a warehouse. Processing the influx of returned items after the holiday season requires as much as 20% more warehouse space.
“It is a big challenge,” Mark Russo of Savills tells GlobeSt.com. “Most returned merchandise ends up in a warehouse. This is where an item gets inspected and sorted, usually by hand. One issue as it relates to warehouse market activity is the seasonality of demand. A great deal of space is needed at peak times of the year, such as following this past holiday season’s record retail sales.”
Returned goods actually require more warehouse space than a for-sale item, because they are more labor intensive to process and place, according to Russo. “Reverse logistics is space intensive because it involves many touches. Inventory can’t be stacked the way that it is in a regular forward logistics warehouse, which means more floor area is needed,” he says, estimating there is a need for about 20% more space due to returns after the holiday season.
While the reverse logistics of handling returns is a major challenge, Russo says there are several real estate strategies that can help warehouse occupiers cope. “One is to contract returns to a third-party logistics provider,” explains Russo. “Another is to find an option to lease extra space on a short-term basis, possibly with a co-warehousing provider. And then of course, returns can be processed in a standalone specialized facility. Leasing functional but less costly second-generation space can make sense for this.”
For real estate owners and investors, the surge in demand following the holiday season is an opportunity. “I think the big takeaway for owners here is finding a good use for an older building that otherwise may be difficult to lease for a forward logistics user for which higher ceilings and a more efficient layout is critical,” says Russo. “These second generation facilities are typically sufficient for returns operations, which have more manual labor and less racking automation.”