Midstate stands to benefit from growth in online holiday returns

Listen to this article

Commercial real estate firm CBRE Group believes that ongoing surge of e-commerce activity — projected to reach $107.4 billion in sales this holiday season — stands to benefit Central Pennsylvania, which is part of the sprawling Interstate 78/Interstate 81 industrial corridor.

Why? Because 15 to 30 percent of e-commerce purchases are typically returned compared with about 8 percent of traditional brick-and-mortar retail purchases. And the midstate’s industrial corridor is home to a growing number of third-party logistics operators and large warehouses.

A number of those logistics firms specialize in what is called reverse logistics, where they quickly process returned merchandise or refurbish products and then resell them at a discount for retailers.

Of that $107.4 billion in online holiday sales, up from about $93 billion last year, CBRE is projecting returns to be as high as $32 billion this year. That growth could open up new opportunities for logistics firms and warehouse developers in Central Pennsylvania, said Vincent Ranalli, senior vice president at CBRE.

“In the past few years, we have witnessed shipping companies invest heavily to bolster their networks to accommodate the increased online traffic,” Ranalli said. “Since the I-78/I-81 corridor is located within a day’s truck trip of 40 percent of the nation’s population, we believe the region will be an ideal location for returned online goods.”

Why e-commerce returns are high

The reason that e-commerce returns are much higher than traditional retail is because shoppers can’t sample online merchandise before buying it. It also is partly due to the widespread practice of online shoppers ordering several versions of a product and returning those they don’t like as much.

And most retailers outsource their reverse logistics operations to cut their own costs and maintain their retail focus.

CBRE Research, an arm of real estate firm CBRE Group, estimates that third-party logistics firms, or 3PL users, occupy 700 million square feet of warehouse and distribution space in the U.S. That number has been growing by 3 percent to 5 percent annually since 2013.

CBRE said returns sold at discount or not resold costs retailers about 4.4 percent of total revenue each year.

Discount retailers such as Ollie’s Bargain Outlet, based in Lower Paxton Township, are known for buying up overstock and closeout items from brand-name manufacturers. Ollie’s also has been able to cash in and purchase merchandise from warehouses tied to companies that are closing down stores or going through bankruptcies.