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IF THERE IS ONE THING ABOUT E-COMMERCE WITH which everyone agrees, it’s that it will spawn unprecedented volumes of returns. One factor is the expected surge in overall e-commerce transactions, which would proportionately boost the number of returns. The other is the inability of consumers to examine or try on a product before they buy it. This, it is reckoned, will lead to more “buyer’s remorse” and, by extension, returns.

Another scenario, and one expected to become more commonplace, is that buyers will order two, three, or even four units of the same product, then keep one of the items and return the rest. Why? Because they can.

Returns are a major cost center, but they are also a brand resource if done right. Today’s consumers increasingly view the returns process, or “experience,” as a key differentiator.

Though there isn’t the same sense of urgency as in fulfilling the original order, a timely returns process is important because it dictates when the customer will be reimbursed. A slow returns program only feeds perceptions of a shoddy operation, which is a key reason people don’t use their devices to shop. A 2014 consumer survey by Indicia Ltd. found that the main reason people are reluctant to buy online is concern about the returns process.

As more businesses get serious about developing some form of a returns policy (if for no other reason than just to get returns out of their warehouses), demand for reverse logistics support—whether internally or through an out-sourced relationship—will undoubtedly grow. The question is by how much?

CAPACITY CRUNCH LOOMING?

For now, reverse logistics is a small piece of the overall
retail puzzle. But it’s not expected to stay that way. North
American e-commerce sales and returns are each growing
at a 15-percent annual rate, according to David Egan,
Americas head of industrial research for CBRE Inc., one
of the world’s largest commercial real estate services firms.
Last year, $290 billion worth of sales in the U.S. and Canada
were returned, or about 8 percent of total retail sales,
according to CBRE. But 30 percent of e-commerce sales
were returned, according to CBRE data. Returns that end
up being sold at deep discounts or that must otherwise be
disposed of equal a 4.4-percent loss of aggregate retail
industry revenue, CBRE said.

The e-commerce numbers are a growing part of that equation, and they “are not going to get smaller,” said Egan.

Those working in e-commerce— which today includes most every retailer—will need to make a choice if and when their returns traffic begins to swell: build a dedicated physical network to handle the stuff, offload the work to a third-party logistics service provider (3PL), or find ways to sync returns flows with the traditional supply chain, which is still largely driven by the forward move. And that could mean increasing pressure on an industrial property network that in many markets is already tight.

“We hear from customers that are already capacity-con-strained who tell us to get the returns out of their warehouse,” said Ryan Kelly, vice president of strategy and communications for Genco, a Pittsburgh-based unit of FedEx Corp. that handles a large amount of returns. Kelly said customers aren’t particular about whether returns are supported by either a centralized or regional supply chain. He added that demand for warehouse and DC space would come from the 3PL sector and from a portion of the direct-shipper community that is heavily into e-commerce.

Most of the top-tier markets are supply-tight, which has helped create the lowest U.S. industrial vacancy rate on record. The total vacancy rate of the top 50 U.S. markets stood at 6. 4 percent in the fourth quarter,