CBRE: E-commerce Returns Changing Industrial Real Estate

Without question, e-commerce has changed the retail sector–but it might change industrial real estate even more, said CBRE, Los Angeles. 

“Sales beget returns, but e-commerce sales more so,” CBRE said in a new report. So online retailers need to be prepared handle billions of dollars’ worth of e-commerce merchandise returns after the holidays. Based on standard online-sale return rates, the total value of returned goods bought online this holiday season alone could approach $29 billion.

Reverse logistics–the process for handling online returns–has grown significantly in importance as e-commerce continues to grow by double-digit percentage rates every year. Research firm eMarketer, New York, predicted online sales will increase by 17 percent this holiday season to $95 billion. The return rate for goods bought online typically ranges from 15 percent to 30 percent.

“We’ll likely see retailers make progress this year in whittling their online return rates because they have more and better data from past seasons to predict what their customers will buy and keep,” said CBRE Managing Director of Supply Chain Services Joe Dunlap. “Still, big volumes of returns are a fact of life in e-commerce, which leaves retailers with expensive decisions regarding whether to restock, liquidate or destroy returned merchandise.”

Whether retailers can recapture any value from those returned goods depends on how quickly they determine within their reverse-logistics processes what to do with those returns, Dunlap said. Restocking and reselling the returned merchandise recovers the most value, but many goods spoil or drop in popularity before that can happen. Some retailers sell returned goods to liquidators for a lower-value but more certain sale than restocking for a potential sale. The final option is to send the merchandise to the landfill for a total loss.

CBRE said online retailers have two primary choices as return volumes grow: they can add dedicated industrial facilities exclusively for handling returns or they can hire a third-party logistics firm to handle it for them.

The second option is growing quickly. These third-party logistics firms now occupy 700 million square feet of U.S. industrial space and are expanding 3 percent to 5 percent annually, CBRE said.

“Reverse logistics presents arguably the most complex set of challenges and opportunities faced by retailers amid the growth of e-commerce,” said CBRE Head of Industrial & Logistics Research David Egan. “Those that improve their handling of online returns, be it through adding reverse-logistics facilities or outsourcing the process, are closer to creating the seamless process required to win in the e-commerce marketplace.”