Heavy holiday sales continue to drive 3PL reverse logistics activity, says CBRE
3PL operators and facility owners are benefiting from a rapidly rising rate of product returns, as many retailers outsource reverse logistics operations to cut costs and gain maximum efficiencies.
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As online shopping, or e-commerce, becomes an ever-growing piece of holiday retail sales, so, too, does the commensurate returns, or, reverse logistics, activity. That outlook becomes even more clear, when considering that retailers’ efficiency in limiting and handling returns bought online could be as much as $32 billion in 2017, according to recent research published by industrial real estate firm CBRE.
That is not the only number that is significant, though. CBRE’s report, entitled “3PL Operators Benefit from Rising E-Commerce Product Returns,” also noted that 3PL operators and facility owners are benefitting from a rapidly rising rate of product returns, as many retailers outsource reverse logistics operations to cut costs and gain maximum efficiencies. And it added that, based on data from CBRE Research, 3PL users currently occupy 700 million square-feet of warehouse and distribution space in the U.S., while growing at a 3%-5% annual clip going back to 2013.
David Egan, CBRE’s Global Head of Industrial & Logistics Research, said in an interview that this growth rate is sustainable over the next two or three years, with the potential that it could grow even higher.
“There are a lot of things going on in e-commerce and the broader supply chain, where there are a lot of opportunities to be made and a lot of changes are being made, too, some of which are reactive,” he said. Some changes are for the here and now, and others are being made with an eye on ten years out.”
Looking at the current environment, as it relates to e-commerce and the role of 3PL operators, Egan said that 3PLs represent a “sensible solution” for many shippers, because they have a clear understanding of what they are doing and are able to back it up with high service levels and experience, too.
That thesis was further supported by CBRE in its research, which noted that the solution to the reverse logistics problem is improved and expanded supply chain networks that create tremendous real estate opportunities as users add additional warehouses and distribution centers to support the reverse flow of inventory.
When asked what the biggest strides are or what has improved the most on that front going back the last five years, Egan pointed to retailers focusing on customers at the point of sale so that customers are less inclined to return e-commerce orders.
“Another factor is that discount retailers are in expansionary mode and pushing up against the narrative that retailers are dying,” he said. “And a lot of them are expanding rapidly and it is happening at a time when e-commerce sales and returns are growing. As part of their business model, they deal with things in bulk, which is beneficial for both sides of the equation, given that returns are fairly inexpensive.”
Another driver of reverse logistics activity cited by Egan is that many retailers are pushing customers to brick and mortar locations for returns as a better way of doing things. But, looking ahead, he said the magic bullet down the road is reducing the overall number of returns.
“As a consumer, one can buy online and know full well that something can be returned and do it in a fairly easy way,” he said. “But the problems come when someone buys six things online and returns five. The solution to this is to make a point of sale such that a person does not feel compelled to order so many things and to improve satisfaction with the initial purpose. This is where data analytics comes in so retailers really know their customers’ habits and can anticipate what they want to do and buy.”
Other key data points cited in the report included:
● Product returns comprise 8% of total retail sales but are much higher for e-commerce sales from 15%-30% depending on the product type and peak during the holiday sales season
● Adobe forecasts that online sales will increase by 13.8% in the 2017 holiday season to $107 billion, which could result in $32 billion worth of returns
● Returns sold at discount or not resold cost retailers 4.4% of total revenue each year
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman