Retail profit margins are eroding as a result of free shipping and lax returns policies. Returns estimated to be over a trillion dollars a year, globally.

 

The “Reverse Logistics” Crisis

• Get used to hearing this fancy term. It’s how retailers are dealing with billions of dollars of returned items.
• Returns are the top use of warehouse space in the U.S. taking up 700 million sq ft.
• In-store shoppers return 5-10% of what they buy, online shoppers return 30-40%.
• Most returns end up in warehouses, where reverse logistics teams unpack, check for damage and send wherever retailers need them to go.
• Reverse logistics requires much more labor and 20% more space than regular shipments.
• An inbound truckload of goods from one supplier takes 2-8 hours to process, because the goods arrive on large, electronically scannable palettes.
• A truck filled with returns could take 48 hours to process because each item has to be checked and processed.
• December/January will see a record $100 billion worth of returned holiday gifts (much of which gets destroyed because the value is no longer there).

Say Goodbye To Free Shipping?

UPS and Fed Ex are hiking rates 4.9% (as they have done each year since 2010).

• For some residential and rural deliveries, last-mile rates are going up by over 30%.

Amazon looks prescient in building out their own logistics operations with over 50 planes now in the Amazon Air fleet.

• It is estimated they save $2 to $4 per package when using their private fleet, amounting to $2 billion annually (10% of the $21 billion they spent on shipping in 2017).
• The rate hikes will encourage Amazon to further build out its delivery business, particularly for last-mile delivery.

Expect retailers to do everything they can to avoid the free shipping perk.

 

Read on below for more on new retail concepts emerging from the ashes.

 

Online Retailers Expected To Open 850 Stores In Next 5 Years

 

Over 10,000 stores have closed in the U.S. since 2017, and more are closing by the day – which makes 850 new stores seem like a drop in a bucket.

• But it gives click-to-bricks brands a host of options to open permanent stores, especially in New York, Los Angeles and San Francisco.
• Landlords have become more amenable to shorter leases and pop-up concepts.
• Clicks-to-bricks brands tend to cluster in neighborhoods that share a similar aesthetic and philosophy e.g. in NYC it’s Soho and Nolita especially around Lafayette and Prince/Spring. That’s where you’ll find All Birds and Everlane.
• Talking about stores closing, can anybody explain Lampert’s folly to me? Why is that man fighting so hard to keep Sears alive?

 

AMAZON GO: 3000 by 2021?

 

Checked this out in Chicago. Very impressive concept. And even more impressive given the sales figures.

• Amazon Go brings in 50% more revenue than typical convenience stores (Source: RBC Capital Markets)
• Average order at Amazon Go is $10 with 550 visitors a day, an estimated $1.5 million in revenue a year vs. $1 million a year for a regular convenience store.
• But Amazon Go stores need more initial investment than normal convenience stores.
• The first Go location required more than $1 million in hardware alone.
• Amazon would need to spend $3 billion to roll out 3,000 stores.

 

Walmart attracting more online grocery shoppers

Walmart’s biggest advantage over Amazon is its proximity to shoppers.

• There’s a Walmart location within 10 miles of 90% of the U.S. population.
• Amazon has only 450 Whole Foods stores, largely concentrated on the coasts and in urban areas.
• Amazon is planning an expansion of the Whole Foods footprint in 2019.
• Shoppers have shown a preference for the click-and-collect model, as it allows them to examine their items before completing a transaction.
• It also means they don’t have to sit around the house waiting for a delivery during a two-hour window.

 

Retailers, Including Grocery Stores, Will Continue Shrinking Store Footprints

 

• All stores from Ikea to Target to grocery stores will shrink.
• Grocery stores will carry fewer bulkier products like sugar, pet food and flour (all available primarily for shipping).

 

Excellent info on retail from Axios.

Found this chart especially interesting. Here’s a link to their deep dive on the future of retail – make sure you scroll down within the article for more links.

 

Bottom Line.

The big story for retail for the next decade is returns. That is the growth industry of the future. I’d put my money on the geniuses behind reverse logistics over any kind of brick and mortar or e-commerce retail.