Page 6 - Al-Rashed Newsletter December 19

SHIPPING WORLD
SPIKE IN HOLIDAY RETURNS HIGHLIGHTS WASTE,

INEFFICIENCY IN REVERSE LOGISTICS

Americans will return up to $41.6 billion in online holiday merchandise this year, according to a forecast from real estate
services giant CBRE Services Inc.

The figure highlights what has become a year-round problem with returns, namely that retailers forfeit about $50 billion a year
in profit because they are so inefficient in handling them, the companies said. Each year there are more than 10 billion
instances of unnecessary shipments and warehouse touches due to the retail industry’s inability to manage the problem, the
companies said in the report, which was published late Dec. 19.
Last year’s holiday returns forecast was $37 billion, CBRE said.

Compounding retail’s dilemma is that consumers, already conditioned to expect deliveries without directly paying for them,
now demand the same entitlement for returns. Amazon.com , for example, is offering free shipping on holiday returns via
18,000 access points, including pickups by delivery partner UPS and drop-offs — with no bag required — at UPS Store retail
locations.

UPS, for its part, said in November that it expected to handle 1.6 million daily returns during the per-Christmas week, which
ended Dec. 20. The company declined to confirm its estimate on Dec. 20 ahead of releasing its fourth-quarter results next
month. UPS said it stands by its estimate that return volumes will peak Jan. 2 at 1.9 million items, a 28% increase over its
2018 holiday peak.

The online return rate is much higher due in part to the “free shipping” enticement, which allows consumers to order multiple
versions of the same item and return as many as they choose without any cost consequences. Unlike store-bought
merchandise, merchandise ordered online cannot be sampled before its purchased.

In addition, while store-bought items that are typically returned to where they were bought, online orders generally do not
return to the warehouse from where they were picked and packed. Goods can be returned anywhere in the retailer’s system.
A product may be restocked in a store, sold to discounters, donated to charity or simply thrown away. In any case, product
depreciation plays a role in a retailer’s strategy. High-value electronics depreciate at a much faster clip than wearing apparel.

Companies are trying to combat the problem in a myriad of ways. One of the more popular approaches is to allow consumers
to return parcels to a retail location even if they didn’t buy the merchandise there. Amazon customers can return parcels for
free to any store operated by retailer Kohl’s Corp. This strategy, known as “buy online return in store (BORIS),” consolidates
returns in one location and eliminates the need for Amazon to dispatch a driver and vehicle to pick up parcels at residences. It
also provides Kohl’s with additional foot traffic that it might not otherwise get.

The ability to effectively handle returns can yield large benefits. Research by Optoro showed that 97% of customers are more
likely to shop again at a retailer where they had a positive returns experience.

Source: https://www.freightwaves.com/news/spike-in-holiday-returns-highlights-waste-inefficiency-in-reverse-logistics