Out-of-stocks could be costing retailers $1T

Dive Brief:

Retailers are missing out on nearly $1 trillion in sales because they don't have on hand what customers want to buy in their stores, according to a study of about 600 households and several retailers conducted last month by IHL Group.
Shoppers encounter out-of-stocks in as many as one in three shopping trips, according to the report, which was emailed to Retail Dive. At food, drug and mass retailers, they encounter out-of-stock items in one in five trips, at department store and specialty retailers it's one in four, and at electronics stores one in three, IHL said.
An "out-of-stock" situation includes empty shelves (encountered by 32% of shoppers), failure to find staff to help (16%), found staff, but not merchandise (17%) or the price in store didn't match an ad (18%), among other reasons (17%). All told, worldwide, shoppers experience $984 billion worth of out-of-stocks, $144.9 billion in North America alone, according to IHL.

Dive Insight:

This issue is troubling for retailers, considering that their customers are already turning online, in many cases to Amazon, to find things they can't or won't look for in stores. And the problem is exacerbated by retailers themselves as they boost omnichannel services like click-and-collect, which deplete shelves further and take up staff time.

Customers report many reasons they'll shop at a store rather than online: They want or need something immediately, want to see or try something in person, want to avoid delivery charges or support their local stores, or they just find it easier to shop in person.

But, too often, physical retailers are losing the sale. Amazon Prime members, facing empty shelves, are 52% more likely than other consumers to take out their phones and buy what they need online, IHL's research found. In fact, researchers believe that "upwards of 24% of Amazon's current retail revenue comes from customers who first tried to buy the product in-store." In all, some $36.3 billion is lost to brick-and-mortar competition and another $34.8 billion is lost to Amazon or another e-retailer, according to IHL. Sometimes shoppers just give up on the purchase, and that costs retailers another $26 billion.

The solution is to get a better handle on inventory and inventory control, according to the report. Rather than compensating vendors based on inventory turns and gross margins, retailers should use a combination of turns, margin and max sales, IHL said.

And technology plays a role, too. "Having a single enterprise order management system that supports inventory regardless of its location and channel for delivery is crucial in today's retail environment," IHL researchers wrote. "The enterprise order management solution needs to be smart enough to optimize the shipping for the greatest margin/sales opportunity. While one is more expensive on this sale, it avoids missing another sale by creating an out-of-stock."

One key is using radio-frequency identification (RFID). Categories tagged that way have seen same-store comps as much as 50% higher in limited inventory SKUs of style and size because inventory counts once accomplished two or three times a year can be done weekly or even more often — which IHL deems table stakes, according to the report.

Another important solution could be working more closely with suppliers for drop shipments of online orders, which relieves stores of escaping inventory, IHL said.