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Supply Chains in Need of More Warehouse Space for E-Commerce Returns

The rapid rise of e-commerce and its bulging share of consumer purchases has increased the need for warehouse space to accommodate the logistics needed handle the higher rate of returns than the touch-and-try nature of brick-and-mortar stores.

Real estate services and investment firm CBRE’s annual report on reverse logistics, for which it teamed with Optoro, a technology company that powers returns optimization for retailers and brands, said companies that chose to handle online returns within their own supply chain often need to add warehouse space to handle processing returns because they are highly labor- and space-intensive.

Optoro estimated that reverse logistics can require 15 percent to 20 percent more square footage on average than the typical outbound supply chain. Another increasingly popular option is to hire a third-party-logistics firm, or 3PL, to handle returns. CBRE found that 3PLs accounted for more than 50 percent of the 50 largest U.S. warehouse leases in the first half of 2018. Nationally, 3PLs have expanded their real estate footprint by 3 percent to 5 percent annually, according to CBRE.

“With e-commerce sales and returns on the rise, retailers and brands need systems in place to route inventory quickly and efficiently,” said Joe Hsu, senior director of solutions at Optoro. “Using a returns optimization platform can help retailers recoup costs, get inventory back to stock and available for sale faster, and improve the customer experience through faster refunds.”

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Online returns could reach $37 billion for the recent holiday season (compared to $32 billion the prior season), according to CBRE, which noted that while e-commerce returns draw additional attention and volume during the holiday season, processing and reselling those returns, often called reverse logistics, is a year-round challenge for retailers and shippers.

While the traditional return rate for goods purchased in stores is roughly 8 percent, the rate for online purchases ranges from 15 percent to 30 percent, depending on the merchandise category, according to the report.

By UPS estimates, 1.5 million returns to were made on Dec. 19 alone, dubbed National Returns Day, setting a record for the sixth consecutive year. That National Returns Day occurred prior to Christmas reflects just how deeply e-commerce is reshaping the retail universe, according to UPS, noting that a second returns rush expected early this month.

The early spike was driven by self-gifting due to retailer promotions, express shipping for deliveries and returns, simplified returns processes and advanced re-stocking and management systems, according to UPS.

“The speed and efficiency with which a company can process and resell or dispose of online returns can be the difference between making money or losing it on their holiday e-commerce sales,” said David Egan, CBRE global head of industrial and logistics research. “The most effective retailers and shippers have built their supply chain to handle a reverse flow of merchandise or they have hired the right partners to handle that for them.”

Fashion apparel can lose 40 percent to 50 percent of its value over an eight-to-16 week span after being returned, according to Optoro, while consumer electronics can lose 4 percent to 8 percent of value for each month the item is not resold. As such, it’s critical for retailers to limit losses on returns by quickly and efficiently processing them and getting them back on the market.