Anthony Hilton: Returns are the unknown quantity in online shopping

It is a rule of thumb that 25% of retail sales happen in the six weeks before Christmas. But the challenges for the established retailers are legion, Mothercare going into administration being only the latest example.

The stagnant economy does not help them but the real challenge is online shopping, even if these chains also have their online outlets. It is reckoned by the Office of National Statistics that online sales are now over 20% of total retail sales.

Right in the centre of this is Prologis, a US-based property company which says it is the largest warehouse business in the world and claims to be Amazon’s biggest distributor.

I caught up with founder and chief executive Hamid Moghadam, an Iranian, when he was at Imrev, a conference for real-estate investors, in Berlin a while ago.

He explained that warehouses used to be near ports because that was where the ships would berth, so they were convenient for import and export. But with the arrival of e-commerce speed became the dominant factor — customers wanted their goods as soon as possible.

Conventional warehouses might have been secure but were not organised to ship goods quickly. They worked in pallets, not parcels, and had few loading bays to cope with the volumes of traffic.

The new warehouses in contrast were sited near towns so that van drivers could access them and take advantage of the “extra mile” of delivery. As a result modern warehouses near big markets have become essential to Amazon, Target and others.

They have also become one of the darlings of the stock market, in contrast to most real estate, which is going through the doldrums, even with Brexit stockpiling.

These warehouses do not just deliver goods and parcels, they also need a vast amount of space for the huge volumes of returns. An executive in Dublin, who was regional head of one clothing e-commerce business, told me this year he reckoned 50% of his goods came back as returns.

That may be an exaggeration, or maybe his fashions looked good but were in fact shoddy. But conventional industry estimates in the United States for all shopping, not just clothing, suggest 30% are returned, compared with 8.9% in conventional stores.

Perhaps the UK is similar, though the data is not available. In fact, Zalando, Europe’s biggest online-only fashion retailer, also has returns in the region of 50%, according to the Centre for Economics and Business Research, one of the few economic consultancies to probe into this area.

Barclaycard says its retailers have seen a rise in refunds of 37% since 2016.