There’s a costly hitch to the happy e-commerce sales estimated at $138.5 billion for 2019. CBRE Group and Optoro estimate the cost of product returns from US online customers during the busy holiday season could reach $41.6 billion.
The cost of this reverse logistics problem is huge for online sales where returns typically reach between 15% and 30% of sales, compared with 8% for in-store sales. That puts returns at potential record levels compared to $37 billion last year.
“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.”
What 2019 returns will look like
CBRE teamed with Optoro, a technology company that helps retailers and brands optimize returns, to provide additional insights on the cost of online returns and value of potential solutions:
- Fashion apparel can lose 20% to 50% of its value over eight to 16 weeks, according to Optoro and electronics lose 4% to 8% of their value each month.
- Distribution facilities handling returns – also known as reverse logistics – need 15% to 20% 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 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 US landfills every year.
“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% of customers are more likely to shop again at a retailer where they had a positive returns experience.”
With many companies waiving the cost of returned merchandise for consumers in order to remain competitive, it’s a challenge for companies to try to recover the cost of reverse logistics.
The big question is how much profit will remain after these and other significant e-commerce costs for retailers and online sellers.
You can view more highlights of the Reverse Logistics Stress in an Era of Free Returns report by CBRE Group here.
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