Snappy Take:
- As holiday sales forecasts soar, analysts CBRE and Optoro predict a whopping $66.7 billion in returns, a staggering 45.6% increase from the average of the past five years.
- The price tag for these returns isn't trivial, with retailers shelling out an average of 66% of the item's cost this year, up from 59% last year. Pricey items like electronics are the biggest drain on resources due to testing, refurbishing, and online sales fees.
- With heightened sales and returns comes an increased demand for warehouse space, yet 23 U.S. industrial markets currently have vacancy rates lower than the national average of 3.6%. To make matters worse, third-party logistics providers are leasing 30% of large industrial spaces, an uptick from 27% in 2020.
Insightful Nuggets:
Holiday shoppers may return a substantial $66.7 billion worth of goods this season.
Last year's returns during the initial COVID-19 pandemic may provide some clues for what retailers can expect this holiday season. The surge in e-commerce sales during the pandemic accompanied a surge in returns as well, with UPS expecting over 8.75 million returns during the week of Jan. 6 in 2022, marking a 23% increase compared to the peak week of returns during the previous holiday shopping season.
Returns can be a costly headache for retailers’ budgets and the environment. Despite these costs, a survey from the Reverse Logistics Association found that over half of respondents expect return costs to rise, and 65% anticipate an increase in return volumes. Parcel delivery costs are also on the rise, with FedEx announcing additional surcharges for packages that will continue through early 2022.
"The e-commerce holiday return process has always been a major hurdle for retailers, but this year will be especially difficult," noted John Morris, executive managing director and industrial and logistics leader. "The growth of e-commerce during the pandemic and the increasing costs across the strained supply chain will make reverse logistics tougher and more costly than ever before this holiday season."
Key Factors Impacting Returns:
| Factor | Impact on Retailers ||-----------------------|-------------------------------------|| Online shopping surge | Increased return volumes || Complex product categories| Higher return rates in apparel, footwear, and auto parts || Gift-related returns | Additional returns from recipients || Shipping/logistics delays| Increased support costs, lower satisfaction, potential revenue loss || Product damage/defects | More returns and exchanges, higher operational costs || Customer churn | Lost revenue, higher customer acquisition costs |
With these factors simultaneously contributing to the challenges retailers face during the holiday season, efficient return management and logistics have become key to minimizing costs and maintaining customer satisfaction.
- The heightened demand for warehouse space due to increased sales and returns might be addressed by breakthroughs in artificial intelligence (AI) and technology that could optimize storage solutions.
- As the pandemic continues, health regulations and restrictions could impact physical retail stores, driving more consumers to online shopping and consequently increasing return volumes.
- In light of the environmental concerns brought by massive returns, fashion industry leaders might consider adopting sustainable practices to reduce the waste and energy usage associated with the reverse logistics process.
- Given the growing importance of cybersecurity within the digital marketplace, retailers should invest in robust protection systems to safeguard customer data during transactions, particularly for holiday sales.
- Amidst the space crunch created by soaring returns and the surge in e-commerce, environmental policy could be implemented to encourage the development of more sustainable infrastructure that caters to industry needs.
- The financial impact of the pandemic on small businesses and retailers has been severe, prompting calls for policy support to provide adequate resources for tackle return challenges this holiday season.
- The increasing costs associated with shipping and logistics could have a detrimental effect on consumer spending this holiday season in markets that face tight fiscal policies and high inflation rates.
- In an era of growing political tensions, the impact of war could disrupt the supply chain, leading to higher costs, shortages, and spikes in return rates as consumers struggle to find alternative options.
- With the weather forecasts predicting extreme conditions worldwide, inclement weather could aggravate shipping and logistics delays, further straining the reverse logistics process during the holiday season.
- The ongoing transformation of television through streaming services and on-demand content could impact retail sales and return volumes, as consumers become more accustomed to purchasing products via mobile devices and smart TVs.
