Retailers have applied lessons learned from the years of pandemic-influenced shopping patterns to position their stores and ecommerce operations for this year’s holiday season, according to CBRE.
These adaptive strategies are expected to help boost holiday spending to a 6.9%, year-over-year increase in fourth-quarter retail sales to $1.48 trillion, based on CBRE’s analysis of industry projections.
“This year’s holiday season is already illustrating the adaptive nature of retail and retail real estate,” said Bill Wright, senior managing director for Retail Advisory Services in the Americas at CBRE.
“Dramatic changes in shopping patterns and practices due to the pandemic spurred retailers to think differently and early about their stores, their operations and their supply chains, with the goal of delivering a better shopping experience and higher sales,” Wright points out.
Retailers are largely focusing on key trends, according to CBRE, such as maintaining more inventory. Supply chain disruptions hurt retailers in 2020 and 2021 as shuttered factories and bottlenecked ports created merchandise shortages.
Retailers and ecommerce companies have sought to counter that problem this year by stocking more inventory closer to the customer, whether in stores or warehouses close to large population centers.
This entailed shifting from a “just-in-time” model of stocking only what is forecast to be needed to a “just-in-case” model of amassing deeper inventories farther ahead of the season, CBRE says.
In many cases, this has resulted in jam-packed warehouses and larger-than-usual stockpiles of loaded shipping containers behind stores or in storage yards. It is one of the factors that has pushed the vacancy rate of leased warehouse space in the U.S. to a scant 2.8% this year from 3.6% last year.
Retailers are still grappling with widespread disruption and displacement in the job market.
Retailers are taking multiple approaches to address the labor challenge. Some have reduced store hours, including several national retailers who announced they wouldn’t open on Thanksgiving this year. Some are leaning more on their ecommerce operations, as staffing up fulfillment role in warehouses has proven easier than finding associates for retail stores.
Another tweak involves store layouts; many retailers redesigned their stores to dedicate space for employees to fill online orders quickly and separate space for customers to pick up those orders, making stores more efficient and allowing for better connection between retail associates and customers.
There could be up to $85 billion worth of goods returned during the 2022 holiday season. Retailers and logistics operators must decide what to do with returns to recapture product value and minimize waste. Physical returns allow the store to assess whether the item is in good enough condition to put back on the shelf at a full or marked-down price.
Although many customers expect free returns, this is costly for retailers. On average, it costs $33 (or 66% of the price of a $50 item) to process a return. That cost likely will be higher this year given increased transportation and labor costs.
In addition to transportation and labor, contributing to the high cost of returns are processing, discounting and liquidation losses. “A customer-centric return policy is a competitive differentiator and has become increasingly important to attract and retain customers,” CBRE says.
Many retailers use third-party logistics providers for return management. This has contributed to 3PLs accounting for 36% of large industrial leases (100,000 sq. ft. and above) in 2022 year-to-date, up from 30% last year.
CBRE believes 3PL activity will continue to grow as retailers outsource reverse logistics to reduce costs and avoid the challenge of finding warehouse space in record-tight markets with limited labor.