Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Reverse Logistics is the process of managing and optimizing the flow of returns from the consumer to the manufacturer.
With online retail sales rising by 10% annually, the volume of returns is also growing. In fact, returns for online sales tend to be 2-3 times more frequent than returns for in-store sales…15%-30% of online purchases returned…compared to 8%-9% of merchandise bought in-store.
The longer it takes for items to be returned and processed, the greater the depreciation on the merchandise, especially for fashion apparel and seasonal products.
Reverse logistics software provider Optoro estimates that the value of apparel depreciates by 20%-50% within 8-16 weeks. Electronics lose 4%-8% of their value per month. So the challenge for retailers is to get returned items back into inventory for resale quickly.
Apparel returns comprise a huge chunk of reverse logistics because without the physical experience of seeing, touching or trying on an item online shoppers tend to buy multiple items with the intent of returning most of them.
Returns are yet another demand driver for warehouse space. Reverse logistics operators are taking up vacated space in class-B industrial buildings, driving down overall industrial vacancy.
Second-generation warehouse space is typically preferred over modern, class-A space for reverse logistics because lower ceiling heights are more appropriate for high-touch, slower-processing return activities and involve odd pallet configuration loads that make them difficult to safely stack or store on high racks.
This dynamic has created a market niche for older industrial buildings that didn’t exist 10 years ago.
Meanwhile, with reverse logistics presenting a growing challenge, there is a greater push to develop new returns models and strategies that are efficient, but also provide consumers with a good experience, as studies indicate that ease of returns drives online customer loyalty.
In-store returns are the best solution which is why some retailers without physical locations are partnering with bricks-and-mortar chains to allow their customers to return items to a store. Amazon, for example, offers Prime members free, package-less returns at more than 1,150 Kohls stores nationwide.
This is a win-win for Amazon and Kohls, as its increases foot traffic and sales in Kohls stores, while reducing the cost of reverse logistics for Amazon.
The good news for industrial real estate owners is that currently there are no new technologies on the horizon that will disrupt the flow of reverse logistics. That should ensure ongoing demand for return logistics processing space for the foreseeable future.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com