E-Commerce Growth Brings Costly Byproduct, Online Returns

By Dennis Kaiser

The voracious growth of e-commerce brings with it a costly byproduct – online returns – that CBRE calculates could total as much as $37 billion for this holiday season. The challenge of processing and reselling those returns – often called reverse logistics – is a year-round conundrum for retailers and shippers.

In Southern California, online shopping during the holiday season increased significantly, as 64% of adults in the region (9.3 million adults) purchased items online, 5 percentage points higher than the national average, according to CBRE research. Since the Inland Empire shoulders 90% of this return load, Connect Media asked CBRE senior industrial analyst Jamil Harkness to share insights about the regional impact in our latest 3 CRE Q&A.

Q: What are Inland Empire retailers and e-commerce companies doing to handle the increase in online shopping and returns? 
A: Many companies are investing billions of dollars into upgrading their stores, technology and additional fulfillment centers to improve supply chain challenges. Returns, or reverse logistics as it’s called, remain a key reason why e-commerce related users continue to lease additional warehouse space. On average, the return rate for goods purchased online ranges from 15% to 30% — primarily clothes, electronics and books. Most companies have no choice but to improve their e-commerce supply chain to stay competitive in the Inland Empire and Southern California region, which is a top market for them.

Q: What prompted the increase in online shopping during the holiday season, and what was its impact on the industrial market?
A: More brick-and-mortar retailers in this region implemented aggressive omnichannel strategies unlike in prior years, capitalizing on the convenience of online shopping. The implementation of buy-online/pick-up-in-store (BOPS) and buy-online/ship-to-store (BOSS) created a win-win for both retailers and consumers in Southern California. Particularly, the impact of BOSS for most retailers and e-commerce users prompted them to lease additional warehouse space to handle items shipped from the warehouses to the nearest retail store or home address. In 2018, retailers and e-commerce related users accounted for more than 41% of total gross activity in the region.

Q: Is there a noticeable difference between online and brick–and–mortar return rates?
A: Yes. The return rate for online purchases are two to three times higher than the brick-and-mortar return rate of 8%. That has forced more companies to lease additional warehouses, as reverse logistics can require up to 15% more square footage than a traditionally outbound-only supply chain.

You can hear more about the trends shaping the retail industry at Connect Retail West coming up on Jan. 22nd at The Resort at Pelican Hill. Here’s where to get more information and register to join us.

For comments, questions or concerns, please contact Dennis Kaiser