How returns create chaos for ‘reverse’ logistics industry
The holidays are over, and so are most of the frenzied sales at stores and shopping centers large and small.
But for the warehouses that kept store shelves stocked, the busy season is nowhere near finished. Peek inside those vast concrete walls, and it still looks a lot like Christmas as returns stack up on warehouse racks.
It’s estimated that as much as 30% of online holiday sales will be returned, creating a post-holiday headache called “reverse logistics.”
As much as $41.6 billion worth of goods bought online in the 2019 holiday season will likely to be returned, according to research by commercial real estate brokerage CBRE and Optoro, a technology company that assists retailers in managing its returns.
Some 30% of apparel and shoes purchased online are returned, and at least 15% of books, household goods and electronics, according to CBRE’s research. For goods purchased in person at stores, the return rate is about 8%.
The bottom line is there are millions of tons of returned goods and not enough space and resources to handle it, industry experts say. Optoro says the retail industry’s inefficiencies in handling returned merchandise can lead to a loss of $50 billion in profit margins every year.
“There is no solution,” said Mac Hewitt, executive vice president for industrial properties at the Ontario office of commercial real estate brokerage JLL. “Nobody really knows how to do it and make it work so that it’s not a huge loss of money.”
The problem began to bloom several years ago when Amazon first offered
a free return policy, Hewitt said. In an effort to keep up, other retailers soon followed suit.
“None of these companies anticipated the problems that would come from free returns,” he said. “Their supply chains were not set up to handle this mass return of inbound product. They’re there to ship goods and refill that space with more goods to ship. But then all this stuff comes back, and there’s nowhere to put it.”
There are stories, Hewitt said, about people who order five different pairs of shoes online, try them on, decide which one they liked best, and return the other four to Amazon, with full refunds. The returned merchandise loses value, creating a multitude of problems for retailers and logistics operators.
At the warehouse level, the flood of returns cripples efficiency ratings that gauge how much manpower is
spent on each item. In Amazon’s robotic-assisted fulfillment centers, items are taken off shelves, packed using computerized measuring for the right-sized box and the necessary piece of tape, and sent via conveyor belt to a truck dock. Optimizing the time spent on each item is critical.
In logistics lingo, there are very few “touches.” But this is not the case for returned goods, which have to be returned to warehouses and inspected, then moved again once a decision is made. All of this adds to space and manpower expenditures.
Compounding the problem is the depreciation of returned items. A blouse stuffed back into a box and returned to the warehouse may never be sold to another consumer. It could end up being discarded, a total loss for the retailer.
Some retailers sell returned goods to secondtier retailers, getting between 20 to 50 cents on the dollar compared with their worth at a store, he said. Other merchandise ends up in landfills.