VOL. 10 | NO. 5 | Saturday, January 28, 2017
EMPHASIS: Distribution & Logistics
E-Commerce Return Shipments Spur Growth in Reverse Logistics Sector
By Patrick Lantrip
After the dust settled from the busiest time of the year for return shipments, commercial real estate services and investment firm CBRE Group Inc. released a report that outlined the methods retailers use to handle returned merchandise from e-commerce sales.
As online shipping grows, reverse logistics – the process for handling return shipments – is becoming increasingly important to retailers. (shutterstock.com)
In the report, CBRE calculated the total value of returned goods bought online this holiday season will range from $14 billion to nearly $29 billion, based on standard return rates for online sales.
Reverse logistics, the term designated to describe the process for handling online returns, is increasingly becoming an integral business strategy as e-commerce grows exponentially.
“As online shopping sales continue to grow, so will the returns,” said Patrick Burke, senior vice president with CBRE’s Industrial & Logistics team in Memphis. “Memphis should continue to see more reverse logistics providers following this trend. Our central location, along with FedEx and UPS hubs, are all benefits for these companies.”
Research firm eMarketer predicted online sales would increase by 17 percent during the 2016 holiday shopping season to $95 billion, and the return rate for goods bought online typically range from 15 percent to 30 percent, according to CBRE.
Retailers generally are left with three possible solutions to handle the increase in returned merchandise: restocking and selling, selling returned goods to a liquidator, or sending them to the landfill.
“Returned product is handled differently, and often refurbished and packaged to be resold,” Burke said. “Some companies prefer the product to be destroyed so that it is not resold. It just depends on the retailer’s goal.”
The National Retail Federation reports that merchandise returns cost U.S. retailers more than $260 billion in lost sales in 2015.
To help alleviate the burden caused by returns, retailers typically either designate in-house facilities specifically to handle returns or hire a third-party logistics firm, which is becoming an increasingly popular option, the report found.
“In Memphis, we have seen an increase in the number of third-party logistics companies specializing in reverse logistics for their retail customers,” Burke said.
According to CBRE, third-party firms now occupy a collective 700 million square feet of U.S. industrial space and are expanding at a pace of 3 percent to 5 percent annually.
“This is a growing sector in Memphis and across the country,” Burke said. “Having the lowest vacancy rate in 15 years, it will likely fuel more new construction.”
When it comes to shipping, the sheer volume of holiday returns even led UPS to dub Jan. 5 as “National Returns Day.”
Earlier this month, the Atlanta-based shipping giant announced that it alone expected to receive more than 5.8 million return packages during the first week of January, with more than 1.3 million of them expected on Jan. 5. The numbers were up from last year, when UPS received 5 million packages during the first week of January, including more than 1 million packages on National Returns Day.
“While returns can’t be eliminated, an easy-to-use returns experience should be one of several retail strategies to enhance customer loyalty and manage the cost of returns processing,” UPS chief marketing officer Teresa Finley told the Daily News at the time.
While they did not specifically mention returns, FedEx executives spoke at length during the company’s quarterly earnings call in December about the rise in holiday shopping and the challenges of adapting to an ever-changing e-commerce environment.
“Last year, holiday shopping sales hit approximately $70 billion,” Jonathan Lyons, senior communications specialist at FedEx, told the Daily News in January. “However, an estimated $20 billion of those sales were returned. In addition, e-commerce has an increasingly higher return rate, ranging from 15 percent to as much as 30 percent of products bought online.”
According to a National Retail Federation consumer survey conducted in December, 56.5 percent of people said they planned to shop online, up 6.8 percent from 2015 and the highest percentage on record.
And since all numbers seemingly indicate that e-commerce sales will continue to rise year after year, the companies that have a better grasp on reverse logistics will increasingly have a competitive advantage over those who do not.
“Reverse logistics presents arguably the most complex set of challenges and opportunities faced by retailers amid the growth of e-commerce,” said David Egan, CBRE’s head of Industrial & Logistics Research, the Americas. “Those that improve their handling of online returns, be it through adding reverse logistics facilities or outsourcing the process, are closer to creating the seamless process required to win in the e-commerce marketplace.”