Reverse Logistics Rides High on the Wave of E-Commerce

With the ongoing growth of e-commerce, the volume of returned inventory continues to rise for logistics managers in a variety of industry sectors. But arguably, it’s U.S. retailers who have felt the greatest impact in recent years. Indeed, the National Retail Federation (NRF) estimates that over $400 billion in goods are returned in any given 12-month time frame.

“Historically, many returns end up in landfills, and the transportation of these goods contributes to retail’s carbon footprint,” adds NRF chief economist Jack Kleinhenz. “This becomes more of an issue when one considers that online and other non-store sales were up 14.3% year-over-year in 2019.”

Even global leaders attending the World Economic Forum in Davos this year seized upon the urgency for a “reverse loop,” with IMO secretary general Kitack Lim calling for renewed cooperation from all stakeholders. “Shipping, transport and the supply chain as a whole can make a successful transition to a low or zero carbon future and contribute to global sustainability,” he stated. “Reverse logistics is key to the effort.”

Era of free returns

So, with all of the buzz about e-commerce and its steadily growing global footprint, it’s little wonder that industrial real estate giants have broadened their focus on the returns trend.

In its recent report titled “Reverse Logistics Stress in an Era of Free Returns,” Los Angeles-based industrial real estate firm CBRE goes deeper into the circular economy. Amid last year’s soaring holiday season, CBRE researchers estimate that e-commerce sales had a much higher return rate than those of brick-and-mortar stores—between 15% and 30%.

According to James Breeze, CBRE’s global head of industrial and logistics research, reverse logistics will be a major “demand driver” for industrial real estate going forward. “A record number of packages where returned this past year, and this will continue to increase as the rate of e-commerce to total retail sales grows,” he says. “Look for reverse logistics to be the main reason shippers will continue to search for class B industrial warehouse space in particular.”

Adding pressure to the mix, retailers increasingly must meet consumer demand for free returns, along with a simple return process, to remain competitive, CBRE researchers conclude.

“If the returns are not handled in-store, there are shipping and handling costs that each have a labor cost,” says Breeze. “Shipped returns also present challenges in processing times, liquidation recovery and manual processes that can result in more than $50 billion in profit loss and more than 10 billion needless shipments and touches.”

Other key challenges to reverse logistics include product value depreciation and time sensitivity. As the overall return rate continues to grow by 10% annually, a higher amount of inventory is subject to depreciation. According to Optoro—a UPS-backed software provider—fashion apparel depreciates by 20% to 50% of its value within eight to 16 weeks, creating urgency to get inventory back into circulation and ready for resale.

“Depreciation levels vary by product type, with electronics losing between 4% and 8% of their value per month,” says Optoro researcher Sarah Foulke.

Washington, D.C.-based Optoro, collaborated with CBRE on the report, noting that many retailers with “thin supply chain networks” are more inclined to outsource their returns management to third-party logistics (3PL) providers in order to free up space for forward logistics. This has created a significant amount of opportunity for the 3PLs specializing in the reverse loop, including XPO Logistics, Ryder and NFI, conclude researchers.

Social media

With online shopping become increasingly prevalent, social media’s role is rapidly expanding, note researchers for Advanced Supply Chain Group (ASCG), a reverse logistics consultancy serving the global marketplace.

According to researchers, nearly 34% of consumers surveyed in a recent study will make more impulse buys as social media is making it easier to buy products through in-platform selling tools. Meanwhile, 63% of these impulse shoppers will end-up sending more of their purchases back to retailers, accounting for a fifth of all online shoppers making more returns.

ASCG has since advised shippers on how to increase their returns policy from 28 days to 45 days, while also warning shippers about “serial returners” to the extent of deactivating accounts. The notification comes after the industry has faced unprecedented pressure to preserve profit margins.

A recent survey conducted by eMarketer, a subscription-based market research company providing insights and trends related to digital commerce, shows that social media referrals to e-commerce sites more than doubled in the past two years. ASCG says that this has profound reverse logistics implications, as platforms are changing from simply advertising products to offering a direct buying experience.

“This is supercharged window shopping,” says Ben Balfour, ASCG commercial director. “Consumers can act quickly and easily on impulse. While this will see more purchases returned, it’s something retailers need to embrace.”

Researchers say global retailers are increasingly moving toward supply chain models influenced by consumer trends, rather than making pure cost-only decisions, to address frustrations such as those highlighted in the research. They add that this is having a more positive impact on turnover and profitability as it drives sales and brand loyalty.

“Omni-channel retailing has been evolving toward this seamless shopping experience and, for the consumer, returning items is becoming a typical part of their purchasing. It’s something they expect to do and is very much part of the future of e-commerce,” concludes Balfour