The Supply Chain … ( In the Industry, they call it ‘Reverse Logistics’): E-Commerce Backwash – Return of Gifts Puts a Strain on Warehouses

John Morris

In Houston, Today, America’s warehouses are experiencing the backwash from the e-commerce boom. January 2 will be the peak day for merchandise returns with an estimated 1.9 million packages heading back from buyers to sellers on this day alone, as stated by a new CBRE report.

The wave of returns requires a great deal of warehouse space. Returning purchased items, such as failed Christmas gifts, requires 15 to 20 percent more space than was required when those good were outbound in a traditional supply chain, as stated by a CBRE report created with Optoro, a technology company that powers returns optimization for retailers.

Total online holiday sales are forecast at $138.5 billion for 2019, up by 13.5% from 2018, and approximately $42 billion worth of those purchases are slated to be returned, the report said.

Typically, second-generation space is preferred over modern, Class A space. Lower ceiling heights are more appropriate since the activities within the space are high-touch with slower processing, and the odd configuration of pallet loads makes them difficult to safely stack or store in high racks, the report said.

The value of the goods is rapidly depreciating, to there is urgency in processing the returned goods, a process the report calls Reverse Logistics.

“Returned merchandise has a massive impact on retailers’ bottom lines, so the industry is keenly focused on developing new ways to reduce returns and better process those that do come in,” said John Morris, CBRE Executive Managing Director and Americas Industrial & Logistics Leader.

• Various merchandise categories depreciate at different rates when returned to a retailer. For example, fashion apparel can lose 20 percent to 50 percent of its value over eight to 16 weeks, as stated by Optoro. Electronics lose 4 percent to 8 percent of their value each month.

• Distribution facilities handling returns, reverse logistics, need 15 percent to 20 percent more space than a traditional facility for outbound distribution because the volume, dimensions and final destination of returned goods are inconsistent and varied.

• Options for reassigning returns include restocking the merchandise in the store; selling it to discounters and resellers; donating it to charities; or destroying it. Returns generate 5 billion pounds of waste in U.S. landfills annually, per Optoro.