March 8, 2016

Reverse logistics could spark surge in warehouse, DC demand, CBRE report says

Space will be needed to support returns that current facilities can't handle, firm says.

By DC Velocity Staff

The growth of reverse logistics could trigger a surge in demand for warehouses and distribution centers to support the flow of returns that current facilities, built around the traditional forward movement of goods, can't efficiently handle, a report from real estate services and investment firm CBRE Group Inc. said yesterday.

The report, citing an outside source, said that returns during 2015 in the U.S. and Canada equaled $290 billion of retail sales in the U.S. and Canada, or 8 percent of the total sales in brick-and-mortar stores and online last year. Returns accounted for a much larger percentage of e-commerce sales, as customers unable to see or touch a product in person prior to their orders often ordered multiple quantities of the same item and returned all but one, Los Angeles-based CBRE said. During the 2015 holidays, $20 billion of the $70 billion worth of e-commerce transactions were returned, according to the report.

One of the big problems is that most distribution networks are not structured to properly handle the reverse flow of inventory. As a result, retailers are forced to either severely mark down returns or throw them out, costing them about 4.4 percent of total annual revenue due to high shipping and handling costs and the eroding value of the inventory the longer it stays out of circulation, CBRE said.

"The real key to an effective reverse logistics process that recaptures the most value (of the merchandise) is the ability to quickly evaluate items and move them to the best location for their resale," said David Egan, Americas head of industrial research for CBRE and the report's author.

Retailers can either execute the reverse logistics process or rely on a specialist like a third party logistics (3PL) provider to handle it, Egan wrote. In the former scenario, retailers will either have to expand their current space or add space to support a parallel, but dedicated, reverse logistics network. In the latter case, demand for space will increase as retailers transfer the collection, handling, and distribution of returns to their partners, Egan said.

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