Retail gets the most attention with reverse logistics problems, following massive changes for retailers over the last few years. Joe Dunlap, managing director of CBRE Supply Chain Advisory, shared his thoughts on overcoming the challenges of reverse logistics and the efficiencies that can help the process. Here are some of the biggest takeaways:
- The biggest retail players are getting bigger. Retail giants Amazon and Walmart are continuing to grow and consolidate shoppers within their portfolios. Their market shares are impressive: Walmart boasts an annual $500 billion in revenue and has a store located within 15 minutes of most Americans. Amazon has $230 billion in revenue yearly and is projected to capture upwards of 90% of all e-commerce sales. Both companies are acquiring multiple brands and investing in private label products, as well as experimenting with innovative fulfillment and logistics technologies.
- Key retail challenges for reverse logistics hinge on manual processes and decision-making, slow processing times, low liquidation recovery, and poor visibility and insights. An analysis by Optoro says this results in a $50 billion margin left on the table and 10 billion needless touches and shipments, slowing productivity and eating up the bottom line. The enemy here is time. Retailers make it too easy to buy with the click of a button, wave of a phone, or tap of a watch. Getting goods back to retailers takes time and effort on the part of the buyer, and liberal return policies don’t incentivize a speedy return.
- Reverse logistics is nothing like forward logistics, and there are no economies of scale in automatizing processed returns. Product condition plays a big role here. Forward logistics comprise neatly packed boxes in uniform sizes. These are well-known and understood between retailers, suppliers and 3PLs. Reverse logistics can be a mess, with everything from improperly packed liquids to heavily taped packages of all shapes and sizes. This complicates the handling and movement of these goods.
- The recovery value varies depending on the product and timeliness of the return. Items that can be resold in the primary of secondary markets could have a disposition recovery value of upwards of 100%, but that drops rapidly as returns are liquidated or recycled. It hits 0% of recovery value when an item is destroyed, which is typical of seasonal items returned long after the season has passed.
- Reverse logistics can impact key real estate decisions, like whether to co-locate with core fulfillment versus centralizing reverse logistics; leasing a modern Class A versus older facility; and selecting preferences for needs like ambient versus controlled temp and low or high ceiling types. Occupiers have to consider needs for transportation, labor, incentives and location as part of their site selection.
- The biggest lesson for real estate unraveling reverse logistics challenges: They are not going away and will grow as a component of online sales. Reverse logistics will influence but not drive CRE requirements, and will have a small impact on distributed reverse logistics locations as preliminary location, size and other facility requirements decisions are made early in the life cycle.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.