According to new research from CBRE, U.S. retailers and shippers this 2019 holiday season will handle more returns than ever of goods bought online, illustrating a costly drawback to e-commerce's growth that the industry is working hard to contain.
CBRE calculates a maximum value for this season's returns of online purchases at $41.6 billion by applying the standard percentage range for online returns - 15 percent to 30 percent - to this year's projected holiday retail sales. Digital Commerce 360, the data and analysis provider formerly known as Internet Retailer, forecasts that online sales in November and December 2019 will total $138.5 billion.
In contrast, the average return rate for merchandise bought in stores is roughly 8 percent. E-commerce, however, established an early and enduring practice by many companies of waiving shipping costs on returned merchandise, which consumers now widely expect and use.
For its latest annual report on online returns, CBRE again 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. Optoro estimates that the retail industry's inefficiencies with handling returned merchandise result in $50 billion of lost profit margin each year and more than 10 billion instances of needless shipments and merchandise touches in warehouses.
The process of receiving, processing and reassigning returned goods within a supply chain is commonly called reverse logistics.
"Returned merchandise has a massive impact on retailers' bottom lines, so the industry is keenly focused on developing new ways to reduce returns and better process those that do come in," said John Morris, CBRE Executive Managing Director and Americas Industrial & Logistics Leader. "Much of that involves improvements at the point of sale. But a big part of it also entails efficiently processing returned merchandise, sometimes by establishing distribution capacity and procedures strictly for handling returns, and sometimes by outsourcing the process to third-party-logistics companies."
"Many retailers and brands understand the impact that returns have on their bottom line and are looking for systems and technology to streamline and optimize the returns process," said Joe Hsu, Senior Director of Solutions at Optoro. "The good news is that despite the influx of returns this holiday season, the returns moment can have a significant impact on customer loyalty. According to our research, 97 percent of customers are more likely to shop again at a retailer where they had a positive returns experience." Other insights from CBRE and Optoro include:
- Various merchandise categories depreciate at different rates when returned to a retailer. For example, fashion apparel can lose 20 percent to 50 percent of its value over eight to 16 weeks, according to Optoro. Electronics lose 4 percent to 8 percent of their value each month.
- Distribution facilities handling returns - reverse logistics - need 15 percent to 20 percent more space than a traditional facility for outbound distribution because the volume, dimensions and final destination of returned goods are inconsistent and varied.
- Options for reassigning returns include restocking the merchandise in the store; selling it to discounters and resellers; donating it to charities; or destroying it. Returns generate 5 billion pounds of waste in U.S. landfills annually, per Optoro