Is your Amazon tackle box filled with too many mysterious lures? Or are those trendy lightsaber chopsticks not getting you the desired laughs at your favorite on-the-go diner?
Holiday gift returns have become big business, fueling the growth of a third-party logistics industry to handle the burden. Third-party logistics providers are now the largest leasing parties for industrial space in the United States, with more than 100,000 square feet of industrial space leased in the first three quarters of this year, according to a new report from real estate brokerage giant CBRE. It accounts for nearly 31% of all leases.
Over the past four years, third-party logistics providers, many of which offer reverse logistics services, have leased more than 100 million square feet of bulk warehouse space annually, according to CBRE.
For holiday gifts that didn’t arrive this season, including those purchased online, more third-party logistics are needed to get unwanted items back on retail shelves within increasingly short return windows. Provider is intervening.
Joe Dunlap, managing director and global head of CBRE’s supply chain advisory group, told CoStar News that “return rates relative to total sales for retailers tend to be relatively stable during this time of year.” Ta. “As our retail customer revenue increases, our return rates also increase proportionately. There’s both good and bad news about our retail customer growth, but the total volume of returns also increases as well. Increased has.”
The National Retail Federation, a trade group that tracks the retail industry, expects this year’s holiday sales to reach record levels, increasing 3% to 4% to $957.3 billion to $966.6 billion. . Meanwhile, e-commerce sales are expected to rise 7% to $273.7 billion, according to industry groups. CBRE estimates that the maximum value of online returns this year will reach $82.1 billion, based on return rates of 15% to 30%.
The expected surge in revenue, which is rising at the same time as retail sales, has a real estate-specific undercurrent, with third-party logistics providers needing more space to handle these no longer needed goods. , said Dunlap.
Some of the top third-party logistics companies are household names, including UPS, FedEx, DHL, and GXO Logistics. According to a report by research firm IBISWorld, the industry’s market size has grown by 2.25% over the past year, making it a nearly $259 billion industry.
Dunlap said the amount of returns varies by retailer, with brick-and-mortar retailers seeing fewer returns because consumers are able to try on clothing and touch products before purchasing, with an average return rate of 8% to 10%. %. Online retailers, on the other hand, have almost doubled the number of returns and accounted for 20% of sales, as consumers have no choice but to guess clothing sizes or realize the item was not what they expected. He said that it accounted for more than that.
E-commerce surges during the holiday season as consumers look to find treasures for their loved ones online, increasing the likelihood of repeat purchases, Dunlap added. The journey from warehouse to truck to plane in search of a desired product can be risky and can lead to returns if something is damaged.
Dunlap said some retailers can use standalone return centers to handle returns in-house, while others rely on third-party logistics to help manage the process during potentially seasonal times. They are looking for a provider. The rise of e-commerce is expected to continue, with this part of the retail industry expected to account for more than 30% of sales by 2030, Dunlap said. Conversely, Dunlap said he also anticipates reverse logistics needs and the real estate needed. We support the business and continue to grow.
“The percentage of returns due to the holiday season has been steadily increasing, and this will be a factor driving demand for space from customers,” he said.
Craig Hurwitz, director of U.S. National Industrial Research at Colliers, echoed Dunlap’s sentiments, noting that e-commerce continues to expand year on year, with online sales accounting for 15.6% of retail sales in the third quarter of this year. He added that Online sales are expected to account for more than 20% of retail sales by 2027, he said, and real estate requirements to handle return logistics are increasing as well.
“Both factors will have a positive impact on demand.” [for industrial real estate] In the future,” Hurwitz told CoStar News.
One of the wildcards to this growth is that retailers are holding back on returns.
To curb excessive returns, some retailers have started charging fees for returning purchased items, Hurwitz said. Some companies have introduced new insurance policies with shorter return periods. These actions already seem to be having an impact. Online profitability fell to 17% last yearThat compares to a year ago, when the return rate was 22%, according to the National Retail Federation.
Optoro, the technology provider that helped create the online returns report with CBRE and owns Express Returns, estimates that U.S. return costs have increased by 50%, or $149 billion, since 2018. These returns increase sales margins because the average cost of returning unwanted goods is 27% of the purchase price.
In addition to costs, returned items generate 9.5 billion pounds of landfill waste annually, according to Optro, which tracks returned waste. The company said the waste was equivalent to 10,500 fully loaded Boeing 747s.
To combat the rising cost of returns and disposal, Optoro has confirmed that the majority of retailers this year are adding return locations, charging fees for returns, allowing customers to keep certain returned items, and offering online return portals. We have discovered that we have revised our return strategy, including: 44% of retailers surveyed by Optoro have increased their restocking and restocking fees, and this trend is on the rise. On the other hand, most consumers favor retailers with generous return policies, with 44% of consumers saying free shipping on returns is important to them.
express returns teamed up with Staples Similarly, Atlanta-based Happy Returns plans to offer its rival’s label-free returns service at more than 12,000 stores when the store is expected to close. Acquired by UPS. These partnerships only further fuel the boom in return business and provide more convenience to customers.
Optoro CEO Amena Ali said in a statement that returns, once considered taboo in the retail industry, are becoming the norm, and with the right technology and strategy, as well as cutting costs and waste. “Smart retailers have realized that returns are a revenue opportunity.” But provide an experience to win customers.