Woman shopping online.
Oscar Wong | Moment | Getty Images
Free returns are certainly not free for retailers.
In fact, according to logistics forecasts, the cost of handling returns will rise this Christmas season, especially against the backdrop of rising inflation, labor shortages and Covid precautions.
Average vacation return costs retailers two-thirds of the original price of the item when you factor in labor, transportation and storage costs, new data from commercial real estate company CBRE and return technology company Optoro showed.
CNBC got an early glimpse into the annual CBRE Optoro report, which shows a 7% increase in return shipping costs, also known as reverse logistics – with return shipping costs for electronics such as computers, tablets and mobile devices up to 15 times higher than that clothing as workers need to remove personal data.
“It’s increasing because you have a lot more things wired or internet of things that need to be deleted and you have to worry about security,” Tobin Moore, founder and CEO of Optoro, told CNBC . “All watches now have sensors. Now there are clothes and shoes with sensors. I see this as something that is only going to increase.”
The National Retail Federation estimates online sales will grow about 13% to more than $ 222 billion in November and December. The CBRE report predicts that $ 66.7 billion of those online sales will turn into returns – also up 13% year over year and nearly 46% more than the previous five-year average. According to CBRE, roughly 30% of e-commerce sales are returned, compared to 10% of brick and mortar sales.
Higher returns come as large retailers like Walmart, Target and Best Buy face rising logistics costs to make these sales in the first place. CBRE estimates that logistics for these large retailers with growing ecommerce stores now cost 12% of sales, compared to just 6% for more traditional retailers.
John Morris, director of industry and logistics at CBRE in America, told CNBC that shopping early due to supply chain concerns has also resulted in returns returning earlier. “There is no bulk packaging. There are no mass movements. There is no freight consolidation. All of these things come back one by one through the supply chain, ”he said.
According to the CBRE report, logistics workers’ wages rose 5% during the pandemic and retailers need 20% more warehouse space to process returns. “It’s another margin squeeze in a business that is facing margin challenges,” said Morris. “I think you will see new models where customers are given the option to donate certain things or to give an incentive to come back to the store because the impact on margins is already unsustainable.”
CBRE and Optoro said returns continue to be an environmental concern as the reverse supply chain requires more packaging and transportation. “Our estimates put 5.8 billion tons of return packaging into a landfill after this Christmas season. Returns from this Christmas season will also generate around 16 million tons of carbon dioxide,” said Morris.