Article | Future Cities

The gift that keeps on giving: Christmas e-commerce spike leads to rise of ‘reverse logistics’

January 3, 2021

By Cameron Grier

The gift that keeps on giving: Christmas e-commerce spike leads to rise of ‘reverse logistics’

The Christmas aftermath for logistics

Given the significant shift to e-commerce during the pandemic, the holiday e-commerce spike is anticipated to result in record returns. What happens to all these returns is known as the rise of ‘reverse logistics’.

E-commerce returns cause enormous stress to distribution networks, adding significant costs for retailers. Sometimes, it’s cheaper to send returned stock to landfill than to reintroduce it back into the warehouse – costly for the retailer and the environment. In the US, this can typically cost up to 59% of the original price of the item. 

Reverse logistics is creating opportunities for many Third Party (3PL) operators, which drive large volume of demand for industrial real estate. For retailers, it’s important to know which e-commerce products have various depreciation levels. For example, fashion and electronics depreciate rapidly over an eight to 16-week period, requiring urgency to get the items back up and ready for sale. A positive returns policy is a competitive differentiator for retailers to retain customers – so, getting the reverse logistics equation right is critically important.

Success in the sector

Australia’s Industrial & Logistics market outperformed in 2020, despite headwinds created by COVID-19 – with East Coast leasing volumes (in total sqm) for the year exceeding those recorded in 2019. 

Vacancy rates are now at all-time lows, 1.5%-1.8% for core product on the East Coast – figures we expect to go even lower as we move into the new year. Mostly because many major occupiers will be looking to increase their footprints (as requirements to hold more inventory increase) at a time when we’ve seen a lot of supply taken off the market, with approximately 300,000sqm of speculative buildings put on hold – thus new supply will take time to come through. 

Even though Australia went from 11%-15% e-commerce penetration rates this year alone, we are still well behind other global cities. Due to this further rise in e-commerce activity, we anticipate increased demand will equate to an additional 350,000sqm of Industrial & Logistics facilities each year in Australia.