Industrial N Illinois

Holidays create new wrinkle for retailers: Reverse logistics

Holidays create new wrinkle for retailers: Reverse logistics,ph1

One defense of brick-and-mortar retail holds that for some goods, consumers need to hold the product in their hands or try them on. But as e-tailers have streamlined return procedures, even more shoppers are moving to online, opting to instead send unwanted items back. Thus the e-commerce disruption continues to unfold as reverse logistics becomes a trend, particularly after the holidays.

Reverse logistics is the movement of goods and management of resources after sale and delivery to the customer, including product returns for repair and/or credit, as defined by the Council of Supply Chain Management Professionals. According to a recent CBRE study, the holiday season is putting undue stress on retail supply chains.

Retail returns historically comprised 8 percent of total sales, per analytics firm The Retail Equation. However, e-commerce return rates are much higher at 15 to 30 percent, depending on the product type. Holiday sales are projected to see a 16.2 percent year-over-year boost in 2018, that could equate to $37 billion worth of returns.

The meteoric rise of e-commerce has driven distributors and logistics experts to fine-tune the process for maximum efficiency, resulting in massive fulfillment centers, strategically placed distribution warehouses and ever elusive last-mile facilities. Sending goods back up that supply chain is about as easy as charting a course back upriver, against the stream.

This increase in returns has multiplied both the headaches and the costs for retailers and distribution networks not optimally equipped for the reverse flow of inventory. Where there is a problem, there is opportunity—and third-party logistics (3PL) operators may be uniquely poised to capitalize on this trend.

The only real solution for sending more and more goods back to the source is to improve and expand the existing supply chain network; in essence, add more warehouses and distribution centers to handle the reverse flow of inventory. The CBRE report suggest that a reverse logistics supply chain may require up to 20 percent more space than an outbound supply chain, which will likely lead cost-conscious retailers to tap into 3PL networks.

Added costs like shipping and handling fees are one thing, but the biggest enemy of retailers when it comes to reverse logistics is time. The longer a product is not in inventory and available for purchase, its value drops. For every month that consumer electronics are in return limbo, they depreciate by 4 to 8 percent; fashion apparel is even more drastic, with 20 to 50 percent value depreciation over the course of an eight- to 16-week period.

While a brick-and-mortar retailer can literally put most returned items back on the shelf, for e-tailers, that “shelf” could be hundreds of miles away. Greater distance leads to more time to restock and thus higher depreciation. It’s no wonder, then, that these companies are turning to 3PL operators.

Indeed, 3PLs have become a major driver of industrial real estate demand. In the first half of 2018, according to CBRE research, 3PLs accounted for more than half of the largest warehouse leases in the U.S. Nationwide, it’s estimated that 3PLs occupy approximately 700 million square feet and have been growing at 3 to 5 percent annually.