In the first three quarters of 2020, third-party logistics companies leased 27% of warehouse space at properties sized 100,000 sq. ft. or more. They’ve been ramping up to handle the billions of returns sure to deluge retailers that will be processing more than 30% of their sales online this holiday season.
Last Christmas, online product sales tallied $168 billion. This year that tally will vault to $234 billion, more than $70 billion of which will be returned, according to a new report from CBRE that says retailers will rely on the 3PL’s to handle complex reverse logistics.
Costs accrued from the customer care, transportation, and liquidation loss of a $50 returned item can add up to $29.50, according to one of those 3PL’s, Optoro, which polled shoppers and found that 42% of shoppers said they stopped shopping with retailers that handed them negative return experiences.
“So many items travel backwards, and that’s expensive, yet retailers have not made a lot of effort to become proficient in reverse logistics,” said John Morris, executive managing director of industrial and logistics at CBRE. “What they’re doing is hiring the third-party logistics companies. They have all of what’s missing--scale, transportation services, and space.”
Industrial properties have vacancy rates of under 4%, the lowest level in the real estate industry. CBRE expects 1.5 billion sq. ft. of warehouse space to be delivered in the next four years, but only 400 million sq. ft. of that is expected to be ready next year, and all of it is already leased—mostly by 3PLs.
“More than 500 million square feet of industrial space was leased this year, maybe the highest annual total ever,” Morris said.
Returns during holiday 2020 will also be spiked by social distancing policies. For years, event tickets and movie passes have been popular gifts, but with few films or concerts open to audiences, physical gifts will take their places and increase returns.
“With an influx of store orders and limited warehouse space available, some large national retailers are offering customers incentives to make store returns,” said CBRE’s director of industrial and logistics research Matt Walaszek.
According to the CBRE report, which was prepared by Walaszek, Walgreens partnered with a provider to install pick-up and return services at more than 8,000 of its stores using FedEx. The drug chain’s national store portfolio puts it within a five-mile reach of 75% of the U.S. population.