Industrial real estate experts CBRE projects that e-commerce return shipments could total as much as $37 billion this holiday season, and UPS reports that for the first time the single busiest day for returns will be Dec. 19 instead of a day in early January.
The upside should be significant for companies like UPS, which has grown a major reverse logistics capability through acquisition of third-party reverse logistics specialists and leveraging its enormous distribution network. As a result, it is well positioned to handle the demands of what it terms National Returns Day, which previously was in January.
UPS reported on Dec. 19 that it expected that day’s total of return shipments to reach 1.5 million, exceeding the post-Christmas 1.3 million returns it expects to handle on Jan. 3, 2019. Both of these numbers are included among the 800 million total number of packages the company says it will handle this season.
Consumers who got a jump on online shopping in the days before Black Friday are expected to begin returning more than 1 million packages each day in December, jumpstarting the holiday returns season earlier than ever, UPS observes. It adds that the spike is being driven by self-gifting due to retailer promotions, express shipping for deliveries and returns, simplified returns processes, and advanced re-stocking and management systems.
Research conducted by the package giant shows that 75% of e-commerce consumers have shipped returns back to the retailer; 79% said free shipping on returns is important when selecting an online retailer and 44% said the top issue encountered when returning an item online is paying for return shipping. “Top elements of a great returns experience include an easy-to-return online experience and a no-questions-asked policy,” UPS says.
CBRE agrees. “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,” notes David Egan, CBRE’s global head of industrial & 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.”
CBRE points out that while the traditional return rate for goods purchased in stores is roughly 8%, the rate for online purchases ranges from 15% to 30%, depending on the merchandise category. CBRE applied that range to a projection of $123 billion of online sales in this year’s November-December period to arrive at this season’s maximum value of online returns at $37 billion.
That’s markedly more than CBRE’s forecast from last holiday season of $32 billion in online returns.
Both UPS and CBRE teamed with Optoro, a technology company that powers returns optimization for retailers and brands, to generate additional insights on the cost of online returns and value of potential solutions.
Among those insights, UPS reports, is that consumer electronics, once they are returned to a retailer, can lose 4% to 8% of their value for each month they’re not resold. “That illustrates why a critical factor in retailers’ efforts to limit their losses on returns is how quickly and efficiently they can process them and put them back on the market,” the express carrier stresses.
Other categories can lose value even more quickly. For example, fashion apparel can lose 40% to 50% of its value over an eight-to-16-week span after being returned, according to Optoro.
Companies that opt to handle online returns within their own supply chain often need to add warehouse space to do so, because processing returns is labor- and space-intensive. Optoro calculates that reverse logistics can require, on average, 15% to 20% more square footage than the typical outbound supply chain.
Another option—hiring a third-party-logistics (3PL) firm to handle returns—is a popular choice. CBRE found that 3PLs accounted for more than half of the 50 largest U.S. warehouse leases in the first half of 2018. Nationally, 3PLs have expanded their real estate footprint by a healthy 3% to 5% annually.
“With e-commerce sales and returns on the rise, retailers and brands need systems in place to route inventory quickly and efficiently,” says 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.”