Retail’s £419.9 billion out-of-stock problem

Retail’s all-important holiday shopping season is about to commence and traditionally accounts for up to 40% of a store’s annual sales. Yet, all too often shoppers will leave stores or sites empty-handed and disappointed in the months ahead, according to a research report from retail analyst firm IHL Group, commissioned by OrderDynamics.

IHL’s new research, Retailers and the Ghost Economy: The Haunting of Out-of-Stocks, focuses on retail’s £419.9 billion in annual losses due to out-of-stocks—a problem that is particularly vexing as retailers enter the most critical selling season of the year.

Out-of-stocks are defined as any time the customer comes in willing to buy something and leaves without buying that item for any reason other than price. This can be due to product not being available, lack of access to the product or absent personnel to assist the customer.

According to IHL’s research, out-of-stocks total £419.9 billion in lost revenue annually for retailers worldwide, and the leading causes are:

• Shelf is empty (£7 billion)
• Couldn’t find help (£80 billion)
• Price/offer didn’t match ad (£1 billion)
• Staff couldn’t find merchandise (£1 billion)
• All other reasons (£1 billion)

These problems have significant impact on a retailer’s bottom line too, resulting in a revenue loss of 4.1% for an average retailer, in addition to loss of customer trust and loyalty.

Technology can go a long way in helping retailers address many of these problems, but retailers must be careful to consider the implications of technology and connect all the data and systems throughout their organisation. For example:

• Out-of-stocks accounts for £4 billion in lost profits in EMEA alone, and the leading culprits are in emerging markets with poor controls as economies grow. Shoddy forecasting account for lack of availability to consumers and is the largest cost to EMEA totalling to £37.95 billion annually. Ship-from-store can play a role in reducing out-of-stocks, but retailers must consider the strain this fulfilment method will put on their inventory management capabilities.
• Poor labour scheduling leads to £80 billion loss in sales worldwide and £6 billion in EMEA, simply because a customer could not find someone to assist them. Proper scheduling technology can help alleviate this issue, but if a retailer’s systems aren’t connected, this problem will still exist.
• Inconsistent pricing across stores and promotions causes retailers to lose £1 billion (£11.9 in EMEA) each year. Much of this is due to siloed information and processes, as well as organisational disconnects. Connecting data across channels and business departments is crucial for retailers to eliminate pricing and promotional inconsistencies.

“There is a great deal of industry discussion around customer centricity. Retailers are spending time and analysis trying to determine how to attract and retain customers and yet have a long way to go to reduce out-of-stocks and the resulting customer disappointment,” said John Squire, president, OrderDynamics. “As retailers enter the most important part of the year, it’s important to recognise that they can still take steps to reduce out-of-stocks with fast-to-implement SaaS technology and connected data.”

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