Retailers lose £1.15 Trillion worldwide due to overstocks, out-of-stocks and returns

shutterstock_152614322Retailers worldwide lose a staggering £1.15 Trillion annually due to the cost of overstocks, out-of-stocks and needless returns, according to research from retail analyst firm IHL Group, commissioned by OrderDynamics.

IHL’s research, ‘Retailers and the Ghost Economy: £1.15 Trillion Reasons to be Afraid, is a landmark report that details the impact of overstocks, out-of stocks and needless returns  — three of the primary components of the Ghost Economy haunting retail — on the £9.5 Trillion retail economy worldwide. These inefficiencies result in ‘monies left on the table and the loss of sales that otherwise would be available,’ as IHL’s study notes.

The worldwide losses in these three categories are:

  • Preventable returns: £424.9 billion each year
  • Out-of-stocks: £419.3 billion each year
  • Overstocks: £312 billion each year

Losses equal to 11.7% annual revenue for typical retailer

For the majority of retailers, the combined impact of overstocks, out-of-stocks and preventable returns add up to 11.7% of lost revenue. Addressing the inefficiencies and data disconnects throughout their organisation could mean the equivalent of adding £77.3 million in revenue for every half billion in retail sales — or an additional £1.9 billion in revenue for a £16.5 billion retailer.

Greg Buzek, president of IHL Group said: “Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realise huge gains by addressing opportunities that are in hand and slipping through enterprise fingers. These problems are within retailers’ grasp to solve, but it requires more than data, more than business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues.”

Failures in internal processes, personnel issues and data disconnects

The IHL report underscores the gravity of these disconnects. The report takes a close look at what the research firm terms “inventory distortion” — the combined impact of overstocks and out-of-stocks. The top three sources of inventory distortion, according to the research, are: Internal process failures (#1, representing £188.40B in losses), personnel issues (#2, £171.3B) and data disconnects/systems that are not integrated (#3, £147.2B).

Kevin Sterneckert, CMO of OrderDynamics commented: “Retail CEOs are more challenged than ever to answer the growing omni-channel demands of consumers while providing profitable growth for owners and shareholders. With internal process failures, disjointed data and siloed organisations, the answers C-level retailers need are almost impossible to attain without access to new, innovative technologies purpose-built to deliver the full potential of an organisation. This report gives clarity to the key issues that retail executives must focus on and outlines the steps needed to make improvements to their bottom line.”

‘Retailers and the Ghost Economy: £1.15 Trillion Reasons to be Afraid’ is available for download here. It is the first report in a four-part series. Subsequent reports will take a closer look at each of the three components of the Ghost Economy haunting retail: Overstocks, Out-of-Stocks and Returns.