PHOTO: ROB HART, WALL STREET JOURNAL
Final figures have yet to come in but according to the National Retail Federation retailers had a successful 2015 holiday season. Sales were up 0.5% over October and 3% over the same period last year. E-commerce sales increased even more dramatically a Wall Street Journal article reports:
“E-commerce sales rose 11.8% from Nov. 26 through Dec. 20 compared with a year ago, according to ChannelAdvisor Corp., which makes e-commerce software and measures online transactions. Forrester Research Inc. expects e-commerce to account for 14% of retail sales in November and December.”
And of course the 800 pound gorilla in the room, Amazon Inc., took the lion’s share of the online holiday sales. The New York Times reports,
“And of the expected $94 billion growth in all retail sales this year — both in stores and online — Amazon took a staggering $22 billion, or almost a quarter, Ben Schachter, a retail analyst at Macquarie, calculated.”
The Big Winners Are The Parcel Carriers
The big winners, apart from consumers, are the parcel carriers. Amazon persuaded USPS to make Sunday deliveries but both FedEx and UPS were overwhelmed finding it hard to make on-time deliveries much to consumer’s dissatisfaction. The volume of online sales took everyone by surprise! Amazon prime shipped 200 million more items the same period last year so do the math!
25% Of E-Commerce Sales Are Likely To Be Returned
But the soft underbellies of this tremendous volume of online retail sales are the returns. It’s called reverse logistics and great for us in the logistics industry but the question is how sustainable is it for the retail industry?
“This holiday season, goods with an original retail value of $19.4 billion—nearly one-quarter of e-commerce sales—are expected to be returned, according to Shorr Packaging, a distributor of packaging to retailers and other businesses.”
It’s All About Reverse Logistics
There is a growing industry of third-party reverse logistics providers stepping in to take this huge returns burden from the retailers. Genco, a FedEx subsidiary and Optoro are two notable players. Goods are normally directly to centralized return centers run by the third-party logistics providers from where they are re-sold at deep discounts to liquidators and small businesses.
“Total returns for 2015 are expected to be $260.5 billion, or around 8% of all retail sales, according to trade group National Retail Federation. Physical store return rates tend to be lower, at around 7%, according to Optoro.
Are These Return Rates Sustainable?
Consumer shopping behavior is changing. We have seen the first signs of that this holiday period. Online sales will continue to grow and you can be sure so will the returns. Parcel carriers are the big beneficiaries because they get two bites of the cherry, shipping to the customer and the returns from the customer! As much as I high-five my compadres my sense is that the retail industry will be taking a long hard look their returns policies, because the current return rates I’m thinking are unsustainable.
Dell, the Austin Texas based computer manufacturer introduced a new program requiring the owner to call into the factory to obtain a return authorization first. Once on the phone the customer service team were able to work through customers problems and reduce the returns rate by 50%!
Whichever way you slice it though the parcel carriers have had a great holiday season and more power to them!