The return rate for the retail industry in the U.S. and Canada averages 8% of total sales, according to retail analytics firm The Retail Equation. E-commerce, which accounts for an increasingly large portion of total retail sales, has an even higher return rate, ranging from 15% to 30% depending on the product type. The culture surrounding e-commerce has placed additional scrutiny and pressure on the return strategy. Without the physical experience of seeing, touching or trying on an item, e-commerce shoppers have become accustomed to buying multiple items with the intent of returning some of them. This problem becomes most acute during the holiday shopping season. For example, in 2017, approximately $107 billion was sold online during the busy November and December shopping period, which generated more than $30 billion in returned merchandise.
Figure 1: 2017 U.S. Holiday E-commerce Sales and Returns
Source: Adobe, November 2017.
To put this in perspective, with an average order price of $82, this equates to 390 million packages being sent back into a distribution network that cannot effectively handle such massive volumes of returns. These returned items are usually sold at a steep discount to liquidators or disposed of entirely. It is estimated that returns sold at discount or disposed of cost retailers 4.4% of total revenue each year.
The solution to the reverse logistics problem is improved and expanded supply chain networks, creating tremendous industrial real estate opportunities as users add additional warehouses and distribution centers to support the reverse flow of inventory. Third-party logistics (3PL) operators and facility owners are benefitting from a rapidly rising rate of retail returns, as many retailers outsource their reverse logistics operations to cut costs and gain maximum efficiencies. CBRE Research estimates that 3PL users occupy 700 million sq. ft. of warehouse and distribution space in the U.S. and have been growing by 3% to 5% annually since 2013.
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