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The shift to e-commerce means retail returns are exploding. Here's why logistics giants are salivating and who's likely to cash in on a $500 billion market

Published by Business Insider on Fri, 16 Jul 2021

<p><img src="https://static2.businessinsider.com/image/60f09c82016a32001883683c-2400/GettyImages-1225066517.jpg" border="0" alt="Employees place packages on the conveyor belt in XPO company warehouse" data-mce-source="Samuel de Roman/Getty Images" data-mce-caption="Employees place packages on the conveyor belt in XPO company warehouse" data-link="https://www.gettyimages.com/detail/news-photo/employees-place-packages-on-the-conveyor-belt-in-xpo-news-photo/1225066517'adppopup=true"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Returns are growing faster than e-commerce shipments for XPO Logistics, one America's largest logistics companies. This shift, years in the making, signals that XPO is cashing in one of the biggest potential revenue streams in the booming e-commerce game. And the competition is only heating up.&nbsp;</p><p>XPO will spin-off its logistics side of the business <a href="https://markets.businessinsider.com/news/stocks/why-xpo-logistics-is-splitting-in-half-9595567">under the name "GXO" </a>next month, and in an investor presentation Tuesday, the new company's leadership team laid out the ripest opportunities in post-COVID logistics. E-commerce returns were at the top of the list.&nbsp;</p><p>"Our customers have an acute need to get these returns back into inventory where they can be monetized," said Richard Cawston, who will take the role of GXO president for Europe.&nbsp;</p><p>As consumer spending shifts online, returns are compounding. Online shopping comes with a degree of uncertainty baked-in since items are usually unseen before they arrive. But on top of that, many consumers have adapted to the uncertainty by "bracketing"ordering multiple sizes of the same item and keeping what fits.&nbsp;</p><p>Returns that don't come back to the store in the hands of a consumer present logistics issues. Warehouses that ship out products aren't designed to take them in, let alone inspect them for damage or responsibly dispose of what can't be resold.</p><p>Most retailers lack a clear strategy for returns, said Jamie Meyers, director of product development at Re-turnz, a startup that picks up returns and takes them to a warehouse, carrier, or store. Some retailers stack returned products in a corner of a warehouse until the pile becomes too big to ignore, he said. Others give refunds for unwanted items, then <a href="https://www.businessinsider.com/amazon-walmart-and-target-let-customers-keep-some-returns-2021-1">let consumers keep them</a> rather than dealing with the hassle of taking them back.&nbsp;</p><p>So any logistics company that takes goods off consumers' hands and gets them to a sustainable and fiscally-responsible endpoint stands to clean up, according to Tony Sciarrotta, executive director of the Reverse Logistics Association.&nbsp;</p><p>XPO is doing just that. The firm reported 16% compound annual growth in returns revenue for the last three years, and Cawston said that growth is accelerating.&nbsp;</p><p>But XPO isn't the only one. In June, FedEx reported 32% year-over-year growth in returns in its last fiscal year, which ended in May.&nbsp;</p><p>Sciarrotta put the total retail value of annual returned goods in the US at $450 to $500 billion.&nbsp;</p><p>Virtually all logistics companies with exposure to e-commerce are interested in taking a bite out of that market. Cawston laid out why the opportunity can be so lucrative.&nbsp;</p><p>Due to the increased complexity and handling needed to take in, evaluate, sort, and recirculate returned goods, XPO brings in two to five times the revenue on a return compared to an outgoing package.&nbsp;</p><p>That's why companies like XPO and FedEx Supply Chain are investing in technology to help them handle more returns, smarter. If they can find an extra penny in the resale price for each returned piece of clothing, for example, "it's like printing money," Sciarrotta said.&nbsp;</p><p>"There's much, much trapped value in the reverse logistics supply chain," Matt Fassler, XPO chief strategy officer, said at the Wells Fargo Industrials Conference in June.&nbsp;</p><p>Uptake of the more advanced logistics strategies that prioritize getting returned merchandise back into circulation is slow going with retailers and manufacturers, Sciarrotta said. But the more logistics companies with all-inclusive services that maximize the value in returns with the smallest effort on the part of the retailer, the more will get on board. According to the Reverse Logistics Association, <a href="https://www.rla.org/directory/company-tag/list">few logistics companies currently offer that kind of service for returns</a>.&nbsp;</p><p><a href="https://www.businessinsider.com/how-xpo-is-cashing-in-on-e-commerce-returns-2021-7#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/how-vespa-scooters-made-italy-piaggio-group-two-wheelers-2019-7">We visited the Vespa headquarters in Italy to see how the world-famous scooters are made</a></p>
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