An emerging industrial sector is poised for substantial growth as the sales war in the e-commerce sector ramps up.
Reverse logistics operators specialise in collecting, checking and returning goods bought online. But they provide much more than a service that just collects unwanted online purchases. It’s a complex sector that involves sophisticated operational and project management expertise, in addition to expertise in logistics.
Additionally, there’s still potential for businesses in this sector to mature and grow, which is likely to provide interesting investment opportunities for shareholders over time.
The opportunity in numbers
AMP Capital’s research backs this up. We estimate the size of the returns market could grow to more than $15 billion a year by 2025.
A report published by The New York Times also supports this. It shows return rates for online retailers are 30 per cent on average – especially for popular Christmas gifts such as clothes, books and toys1.
Australian Bureau of Statistics figures indicate more than $20 billion a year is spent online, and this figure is growing. This translates to $6 billion of goods returned each year, creating a complex logistical challenge for retailers.
Moreover, customers value exceptional customer service support in this area. AMP Capital’s research into the online retail experience found 63 per cent of consumers rate returning goods as the most negative aspect of the online retail experience. As a result, online businesses that can address this give themselves a competitive advantage and the best ones are rapidly expanding their logistics and also sales capabilities.
Real estate benefits
While it’s easy to assume the growth of online could negatively impact bricks and mortar retailers, it’s actually providing interesting opportunities in this space. New businesses are emerging to help online retailers and logistics firms to pick up returned items.
For instance, in the US, a business called Happy Returns is setting up return booths in major shopping centres. This has a positive flow-on effect to shopping centres, resulting in higher foot traffic thanks to shoppers attending their centres to return goods.
Research by commercial real estate business CBRE also indicates there will be positive impacts for the real estate sector more broadly2. Reverse logistics operators require supply chain networks to be enhanced, which means more warehouses and distribution centres will need to be established to support the reverse flow of inventory. AMP Capital’s research shows the growing returns market could create demand for more than two million square meters of logistics space between now and 2025.
Rising commercial rents, especially for logistics facilities, will also help support the growth story for new industries such as reverse logistics this year and beyond. It’s a theme we will continue to explore this year and into the future as online businesses take an even larger slice of the retail pie.
1 The New York Times, Many unhappy returns? Online holiday shopping’s big hangover, December 2017.
2 CBRE, Return to sender: Holiday season heightens challenge of online returns for retail supply chains, December 2018.
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.