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E-Commerce Merchants Suffer New Year’s Hangover From Returns

Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group

The party’s over and post-holiday shopping blues are making e-commerce retailers dizzy. As the following CNBC item reports, consumers return about 30% of the items they buy online.

“Reverse logistics,” a fancy term for dealing with returned items, is the top new user of warehouse space in the United States, taking up to 700 million square feet nationally, according to CBRE.

The warehouse sector is booming as online shopping, particularly during the holiday season, boosts the amount of items returned to retailers every year.

Warehouses have experienced surging demand since 2012 as e-commerce continues to grow. Construction in the sector is thriving. Now, “reverse logistics,” a fancy term for dealing with e-commerce returns, is the No. 1 new user of warehouse space in the United States, taking up to 700 million square feet nationally, according to commercial real estate services and investment firm CBRE.

“The demand for the space is only going to increase in warehouses unless and until we find a better solution to either return to the store or better incentives for consumers not to return the goods,” said Spencer Levy, CBRE’s chairman of Americas research and senior economic advisor. “We’re talking tens of billions of dollars of goods that have returned and need to either be returned to market, or very often destroyed if the value is no longer there.”

Consumers will return close to $100 billion worth of holiday gifts, according to Optoro, a tech company that works with retailers on returns.

Many online merchants are getting hit with a double whammy. The logistics of merchandise purchased online is complex and expensive, especially for the “last mile” of delivery to the recipient’s address. Now in the New Year, merchants are faced with an avalanche of returns, and are challenged to find places to process and store it, further cutting into slim profit margins. Meanwhile, warehouse owners are ringing in a very Happy New Year.

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