SALT LAKE CITY — The voracious growth of e-commerce brings with it a costly byproduct — online returns — that could cost retailers as much as $37 billion during this holiday shopping season, experts say.
A report by commercial real estate firm CBRE indicates the number of online returns increases significantly in December due to the large volume of e-commerce transacted during the holidays. But the challenge of processing and reselling those returns — called reverse logistics — poses a year-round problem for retailers and shippers.
While the traditional return rate for goods purchased in stores is roughly 8 percent, the rate for online purchases ranges from 15 percent to 30 percent, depending on the merchandise category, explained CBRE Salt Lake retail specialist Stephanie Buranek.
Researchers applied the range to eMarketer’s projection of $123 billion of online sales in this year’s November-December period to arrive at this season’s maximum value of online returns of $37 billion — significantly more than CBRE’s forecast from last holiday season of $32 billion.
"Part of (higher return rate) is because an in-store purchase is experiential," she said. "You have the ability to try it on, to look at it. It's not like looking at something online … and (finding out when you get it that) it didn't look the same as it did in the photograph."
She said the difference in the experience is a likely contributor to the higher return rate for online sales. The retailers that are the most profitable are those that can streamline that reverse logistics process most effectively and efficiently, she added.
In online retail, the supply chain is a major part of the customer experience, explained Dave Nielsen, chief sourcing and operations officer at Overstock.com. Many retailers have realized this, he added, and built loyalty programs that focus on the delivery experience, including returns.
"We see it all the time with company’s focusing on free shipping, fast shipping, easy returns, or any other number of special perks," he said. "For a retailer to establish a great customer experience, they should be thinking about the entire supply chain, including returns.”
“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 and 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.”
Buranek said for its latest annual report on reverse logistics, CBRE collaborated with Optoro, a technology company that analyzes returns optimization for retailers and brands, to generate additional insights on the cost of online returns and value of potential solutions. She said that among those insights were that consumer electronics, once they are returned to a retailer, can lose 4 percent to 8 percent of their value for each month they are not resold.
That decline in value illustrates why a critical factor in retailers’ efforts to limit their losses on returns is how swiftly and efficiently they can process them and put them back on the market, she said.
"The quicker you can get a product back to the company and out again to a new consumer, the more profitable you are on those returns," Buranek said.
Other categories can lose value even more quickly, she noted. Fashion apparel can lose 40 percent to 50 percent of its value over an eight-week to 16-week span after being returned, the report stated.
Companies that opt to handle online returns within their own supply chain often need to add warehouse space to do so, because processing returns is labor- and space-intensive. Optoro calculated that reverse logistics can require, on average, 15 percent to 20 percent more square footage than the typical outbound supply chain, a news release stated.
Another option — hiring a third-party-logistics firm to handle returns — is a popular choice, researchers said. CBRE found that third-party logistics firms accounted for more than half of the 50 largest U.S. warehouse leases in the first half of 2018.
“With e-commerce sales and returns on the rise, retailers and brands need systems in place to route inventory quickly and efficiently,” said Optoro senior director of solutions Joe Hsu. “Using a returns optimization platform can help retailers, recoup costs, get inventory back to stock and available for sale faster, and improve the customer experience through faster refunds.”
Buranek said based on the ever-changing retail landscape, the companies that will do well are those with an omnichannel presence.
"Omnichannel means that you have a retailer that is using multiple sources to attract consumers," she said. "That's online sales, in-store sales and creating a seamless experience between the two — the virtual and the physical."
She said those retailers that "see the big picture" will develop return processes that will benefit the companies and their consumers.
"(The process will create) so many options for the consumer that it just makes it easy," Buranek said. So if one day they want to come into the store and have an experience, great! Or if their preference is to sit on the couch and do it at home, they have that ability as well."
On Wednesday at Fashion Place mall in Murray, customers didn't appear to face much trouble from stores they returned items to on the day after Christmas.
Glenn Avery was at the mall returning an iPhone XR his wife gave him as a Christmas gift — exchanging it for a different color. He said she surprised him with the newest phone from Apple to replace his 4-year-old one.5 comments on this story
"They're a good company, so I'm sure it will be easy," he said of returning the phone in person even though his wife ordered it online. He wanted to enjoy his new red phone as soon as possible, he said, so he went to the store instead of shipping it back.
Laura Stephens also said she had "no hassle" returning a coat to Nordstrom for a different size for her daughter's Christmas gift. She had purchased it there at the same location about two weeks before.
Contributing: Spencer Burt