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There's big money in e-commerce returns – as in possibly $32B

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The industrial properties along the Interstate 78-81 corridor that serve a major e-commerce hub could benefit from a $4 billion jump in merchandise returns from e-commerce companies this holiday season.
This year's e-commerce returns figure is expected to be $32 billion, up from about $28 billion last year.

CBRE Inc., a global commercial real estate services and investment firm with an office in Upper Macungie Township, issued a report last week on the impact of holiday season returns, also known as reverse logistics.

CBRE said e-commerce consistently generates more returns than brick-and-mortar retail stores do. Without the physical action of buying a product and the inability to sample a product online, shoppers often buy several versions of a product, returning those they don’t want.

That’s beneficial for the many e-commerce companies whose distribution centers and warehouses occupy land along the I-78/81 corridor, which includes portions of Berks and Lehigh counties.

Historically, returns of store-bought merchandise have amounted to 8 percent of total retail sales, CBRE said. But for e-commerce, that share ranges from 15 to 30 percent, depending on the product category.

If those percentages stay accurate, CBRE said, the value of returns this season would increase by the same 13.8 percent that Adobe Analytics predicts for the increase in online sales this season. Adobe projects online sales reaching $107.4 billion this season, up from about $93 billion last year, which led to CBRE calculating that the projected ceiling for returns is $32 billion.

“E-commerce keeps increasing, so as that number continues to grow, you need more e-commerce space,” said Vincent Ranalli, senior vice president of CBRE in Wayne. “A lot of these sites are not set up to handle the amount of returns. We just think our region is set up to benefit really well.”

Reverse logistics companies are those companies well-positioned to thrive in the online returns market and able to handle the reverse flow of inventory, CBRE said. These companies include third-party logistics firms (or 3PL) and owners of 3PL facilities. Many retailers outsource their reverse logistics operations to cut costs and gain maximum efficiencies, the company said.

CBRE research estimates that 3PL users occupy 700 million square feet of warehouse and distribution space in the nation and have been growing by 3 to 5 percent annually since 2013.

Along the I-78/81 corridor, there is a huge presence of these facilities that have the ability to handle returned goods, Ranalli said. In the past few years, shipping companies have invested heavily to bolster their networks to accommodate the increased online traffic, he added.

Ranalli sees more opportunities for e-commerce growth on land along the corridor west of Lehigh County.

“The Lehigh Valley is pretty tight right now, about a 4 percent vacancy rate,” Ranalli said. “Companies are pushing a little bit west in Berks County. As you go further west, the cost is less, lease rates are lower, and some of these sites have incentives.”

The region has many e-commerce companies here and is close to major population centers where many people are shopping online, he said.

“You would think a lot of these retailers would come here,” Ranalli said. “This is a net gain for our region.”

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Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 4108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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