Finding a Home for Holiday Returns
Record retail sales, including a growing share of online purchases (see chart), mean that more returns than ever are flooding warehouses. U.S. holiday retail sales were up 8.5% compared to 2020, says data from Mastercard, and 66% of consumers will likely return at least one gift. At 18%, the e-commerce return rate is almost twice as high as retail returns overall.
Worker shortages and low industrial vacancy only add to the difficulties with reverse logistics, which is both labor and space intensive. Most returns end up in warehouses, where they're sorted manually. Here's what to consider when shopping for a reverse logistics warehouse:
- Sites in close proximity to consumer households and retail stores are preferable to keep transportation costs low for reverse logistics.
- Proximity and easy access to infrastructure, such as recycling centers, is key.
- Aim for larger, flexible footprints. Reverse logistics requires 20% more warehouse space than forward logistics.
- A state-of-the-art distribution center is not typically needed for returns processing; a second-generation facility can adequately meet demand. The rent discount compared to new construction can be steep, offering significant value.
- With more manual labor and less racking and automation required, lower clear heights and less efficient layouts are often adequate and can be leased at lower rents.
- Demand is often seasonal, with retailers needing extra space only during peak periods. Manufacturing buildings as well as converted retail stores present flexible opportunities.