ATLANTA—E-commerce power cannot be underestimated. But it seems the industry is wrangling with an unwanted consequence of the boom: returns.

CBRE Group has released a report outlining the methods that retailers use to handle returns of e-commerce merchandise and recent improvements of those processes. Based on standard return rates for online sales, CBRE calculates that the total value of returned goods bought online this holiday season will range from $14 billion to nearly $29 billion.

“We see this putting pricing pressure on real estate and a case where the larger 3pl's will prevail due to their scale and depth, Blaine Kelley, senior vice president in CBRE's Global Supply Chain practice, tells GlobeSt.com. “Reverse logistics are a necessary evil in the world of e-commerce but come with a price. The impact for the industrial real estate community will be a six-month spike in demand of some 2 to 5 million square feet and continued labor availability pressures.”

Retailers' processes for handling online returns, called reverse logistics, have added importance as e-commerce continues to grow by double-digit percentage rates on a year-to-year basis. Research firm eMarketer predicts that online sales would increase by 17% in the 2016 holiday season to $95 billion. The return rate for goods bought online typically ranges from 15% to 30%, due to online shopping habits such as buying multiple versions of a product and deciding later which to keep.

“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,” says Joe Dunlap, CBRE Managing Director of Supply Chain Services. “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 and effectively they determine within their reverse-logistics processes what to do with those returns. Restocking and reselling the returned merchandise recoups the most value, but many goods spoil or fall out of fashion 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.

Online retailers increasingly have two primary choices as return volumes grow. They can add dedicated facilities in their network exclusively for handling returns, which speeds the process and salvages more value from the merchandise. Or they can hire a third-party-logistics firm to handle it for them.

The latter option is growing in popularity. Such third-party firms, which now occupy a collective 700 million square feet of US industrial space, are expanding at a pace of 3% to 5% annually, according to CBRE.

“Reverse logistics presents arguably the most complex set of challenges and opportunities faced by retailers amid the growth of e-commerce,” says David Egan, CBRE Head of Industrial & Logistics Research, the Americas. “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.”

Nevertheless, some say the retail sector is especially safe in 2017. But others say shopping centers are facing disturbing financial challenges. Where do we go from here? Sound off.

ATLANTA—E-commerce power cannot be underestimated. But it seems the industry is wrangling with an unwanted consequence of the boom: returns.

Nevertheless, some say the retail sector is especially safe in 2017. But others say shopping centers are facing disturbing financial challenges. Where do we go from here? Sound off.

Instant Insights /

Holiday E-Commerce Returns Could Reach $29 Billion

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