While the amount of e-commerce orders and goods purchased online continues to grow and grow, what is often overlooked is the back end that comes in the form of the returns of those items, and it comes at no small cost either.
That could be viewed as the working thesis of a new report issued by Los Angeles-based industrial real estate firm CBRE, entitled “Reverse Logistics Stress in an Era of Free Returns.” CBRE collaborated with Washington, D.C.-based Optoro, a reverse logistics software provider for this report.
When looking at the numerical takeaways of this detailed report, it becomes readily apparent that its title could not be any more appropriate.
Why? For starters, CBRE said it calculates a maximum value for 2019 holiday season online purchases at $41.6 billion, which is done through the application of the standard percentage range for online returns at 15%-to-30%, up against the projected $138.5 billion in online sales projected for November and December by Digital Commerce 360. This projection represents a 13.5% annual increase.
Those are some heady stats that really drive the point home in regards to the dollar value of online returns. And it carries even more weight when taking into account that the average return rate for merchandise returned to physical store, or brick and mortar locations, comes in at around 8%, according to CBRE.
Another key data point in the report comes from Optoro, with the firm focusing on the inefficiencies in the retail sector related to handling returned merchandise to the tune of $50 billion in lost profit margin per year as well as more than 10 billion instances of what it called needless shipments and merchandise touches in warehouses.
While regular readers of this web site and magazine are familiar with reverse logistics, the report defines it in this way: “Holiday sales bring more challenges for retailers as a surge of products are returned and pushed back into the supply chain—a process commonly known as reverse logistics.”
As for the challenges related to reverse logistics, the report explained that biggest challenges focus on cost control and product depreciation, coupled with increased shipments and handling that put a lot of pressure on an already stressed supply chain.
And it also pointed the need for retailers to incessantly meet consumer demand for return with a simple return process, in order to remain competitive. The reason for this, it explained, is that if returns are not handled in store, there are then shipping and handling costs that come with a related labor cost, too. And it also added that shipped returns can be challenging in the form of things like processing times, liquidation recovery and manual processes that can result in more than $50 billion in profit loss and more than 10 billion needless shipments and touches.
Another key takeaway of the report examines how an estimate by Optoro indicated that retail supply chains require four-to-seven times more space, allocation over peak periods that, in tandem with the heightened amount of customer and store orders, puts space for forward fulfillment at a premium. That was made clear with 19 U.S. industrial markets that have vacancy rates less than the 4.4% national average. CBRE put that into clear perspective, noting “more forward orders mean more returns impacting space demand especially during the holiday season.”
The CBRE report takes myriad moving parts, as they relate to the retail supply chain and the related logistics pressures and processes required in order to ensure smooth operations into clear perspective. It is a big deal now and it is only getting bigger. And retailers, e-commerce players and their logistics services providers are taking the needed steps to make sure that they are getting it done right.
About the Author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
