Growth in Ecommerce Returns Will Drive Facilities Demand

A new report from CBRE has found that the rapid growth in ecommerce returns is creating future demand for new or expanded facilities, even strategically located “quick response” operations near demand centers dedicated to handling reverse logistics.

“We think in the short term it will probably have a small effect as far as demand, but there is an increasing need for retailers to figure out a strategy for delivering a seamless customer-facing experience in returns, increasingly offered for free, while handling the growing reverse flow of goods,” said David Egan, CBRE’s head of industrial research and author of the report.

According to The Retail Equation, $290 billion of sales were returned in the U.S. and Canada in 2015, representing 8% of total retail sales, while returns that can’t be resold or are discounted cost the average retailer 4.4% in lost revenue, according to research firm IHL Group. Ecommerce returns rates, meanwhile, can range as high as 30% in some cases.

These returns are placing enormous stress and additional costs on retail stores and distribution networks that are not optimized for the reverse flow of inventory, the CBRE report found.

Egan said secondary markets beyond the major ecommerce hubs like Louisville, KY and metro centers are ripe for specialized reverse logistics operations, given the relative availability of commercial warehouse space. He said he was in Greenville, SC, recently, where a major retail client has a 500,000-square-foot warehouse dedicated to handling ecommerce returns.

“The bigger guys have more capital and more flexibility in how they set up their reverse logistics systems, including the use of dedicated space,” he said. “The smaller guys are not at that point yet, so they have to make due with utilizing existing facilities. But given the complexity of the reverse flow of goods, it will eventually require more dedicated space and supply chain solutions. It’s an okay Band-Aid for now, but not a long-term solution.”

Adam Mullen, managing director of supply chain services for CBRE, said he is seeing a trend toward major retailers setting up “quick response” facilities near demand centers, usually metro hubs, to handle ecommerce and store distribution as well as returns processing under one roof.

“We see more retailers opening up sites closer to the customer to handle omnichannel, whether it’s near their biggest retail stores or demand centers,” Mullen said. “These fast response facilities allow them to chase demand and avoid stock-outs by getting returns back quickly as possible so they can react and get it to where it needs to be to capture as much margin as they can.”

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