Retail's $32 billion holiday return problem
As holiday e-commerce surges, retailers’ efficiency in limiting and handling returns of merchandise bought online will make or break the holiday season for many, according to CBRE.
E-commerce consistently generates more returns than brick-and-mortar retail, partly because shoppers often can’t sample online merchandise before buying it and partly due to the widespread practice of online shoppers ordering several versions of a product and returning those that don’t appeal.
Historically, returns of store-bought merchandise have amounted to 8 percent of total retail sales. However, for e-commerce, that share ranges from 15 percent to 30 percent, depending on the product category.
Assuming that those percentages hold true, the value of returns this season will increase by the same 13.8% that Adobe Analytics predicts for the increase in online sales this season. Adobe foresees U.S. online sales this season reaching $107.4 billion, up from approximately $93 billion last year. By extension, CBRE calculates that the projected ceiling for returns is $32 billion, up from roughly $28 billion last year.
“Speed and efficiency in processing e-commerce returns, with an eye toward preserving as much value of the merchandise as possible, often separates the top-performing retailers from the not-so-successful ones in the weeks after Christmas,” said David Egan, CBRE Global Head of Industrial & Logistics Research. “This intricate process requires many components, including a precise network of warehouses for handling returns, robust inventory management systems and extensive customer analysis on the front end to limit the probability of returns.”
Those well positioned to thrive in the online-returns market – also called reverse logistics – include third-party logistics firms and owners of 3PL facilities, according to CBRE. Many retailers opt to contain costs and preserve their retail focus by outsourcing reverse-logistics functions to 3PL firms that specialize in that field.