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Online holiday returns could take a toll on unprepared retailers

Online returns could cost retailers plenty this holiday season.

This was according to “Return to Sender: Holiday Season Heightens Challenge of Online Returns for Retail Supply Chains,” a study from CBRE that revealed that as online sales rise 16.2% to an estimated $123 billion during the 2018 holiday season. This could result in up to $37 billion worth of returns.

Historically, retail returns comprise 8% of total sales. However, e-commerce return rates are much higher, ranging between 15% and 30%, depending on the product type. Returns that are either sold at discount or discarded could cost retailers 4.4% of total revenue each year. This rate increases across specific categories.

For example, returned consumer electronics can lose 4% to 8% of their value for each month they’re not resold. Meanwhile, fashion apparel can lose 40% to 50% of their value over an eight-to-16 week span after being returned, according to Optoro, a technology provider that powers returns optimization for retailers and brands.

Aside from financial losses, returns also place enormous stress on retailers’ distribution networks, especially those that are not optimally equipped for the reverse flow of inventory, CBRE reported.

There are options available to solve the reverse logistics problem. One option for retailers that have both an online and brick-and-mortar presence is too offer buy online return in-store (BORIS) services. In addition to slashing shipping and handling costs, a store-level return of an online purchases often leads to additional sales. In fact, an item that is returned in a store results, on average, in an additional sale that is 107% of the value of the returned item, according to the International Council of Shopping Centers (ICSC).

E-retailers however, need to improve and expand supply chain networks, an option that creates tremendous industrial real estate opportunities as users add more warehouses and distribution centers to handle the reverse flow of inventory. It is estimated that a reverse logistics supply chain can require up to 20% more space than an outbound supply chain.

Third-party logistics (3PL) operators and owners of 3PL facilities are also poised to benefit, as many retailers seek to outsource their reverse logistics operations to cut costs and gain maximum efficiencies.

“The speed and efficiency with which a company can process and resell or dispose of online returns can be the difference between making money or losing it on their holiday e-commerce sales,” said David Egan, CBRE global head of industrial & logistics research. “The most effective retailers and shippers have built their supply chain to handle a reverse flow of merchandise, or they have hired the right partners to handle that for them.”
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