Out-of-Stocks Continue to Hurt Retailers

Discussion
Dec 17, 2008

By George
Anderson

It’s been
pretty well established over the years that you can’t sell something you
don’t have on the shelf. That fundamental principle is reinforced by new
research from IHL Group, which found that out-of-stocks are cutting the
average ring in retail channels from consumer electronics to supermarkets.

According
to the study’s findings, as many as 20 percent of all shoppers at retail
come into stores and find that at least one item they were going to purchase
was out-of-stock.

The worst
offender is consumer electronics stores, where shoppers said they left
stores without buying an item 21.2 percent of the time. In dollars, that
means consumer electronics stores are losing $1.35 to out-of-stocks on
every customer who comes through their doors.

Warehouse
clubs (losing $1.78 per customer) and supermarkets (68 cents) are also
losing significant dollars as a result of out-of-stocks.

"Retailers
remain in denial when it comes to consumers’ perceptions of out-of-stocks," said
Greg Buzek, president of IHL Group, in a press
release.  "Consumers don’t care why the product is not available.
They come in with money to spend at the stores and have to leave either
because the shelves are empty, there is no one to help get a locked item,
or the staff simply cannot find the merchandise even though the computer
system says they have it.  Nine percent of all consumers in our study
have simply stopped shopping at one or more retailers in the last 12 months
due to the problem."

Discussion Question:
Why do out-of-stocks continue to be such an issue at retail? Are retailers
doing a better or worse job of managing inventory today than in the past?

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15 Comments on "Out-of-Stocks Continue to Hurt Retailers"


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David Zahn
Guest
13 years 5 months ago
There are certain fundamentals that are not being achieved: 1) Ordering inventory based on an average store sales (and any store that deviates from that average is prone to out of stocks on some items and overstocked on other items) 2) Assuming that all stores have same/similar department sizes (not every store has 12 feet of linear space and 4 shelves of product–thus causing local decisions to be made at the store on how to best accommodate product on the shelf) 3) Using average DOS (by relying on the “average” days of supply on the shelf, busier days i.e., weekends will risk being out of stock) 4) Not recognizing that not all shoppers behave similarly (the shopper in store A may not resemble the shopper in store B, or cluster C vs. cluster D) 5) Not correctly calculating how promotions impact shelf holding power 6) Store operations not having the labor to restock shelves as needed There are many contributing factors to the out-of-stock issues, but the technology is also catching up to the issue… Read more »
Susan Rider
Guest
Susan Rider
13 years 5 months ago

Yes, this is amazing! This should not happen today. During the Thanksgiving holiday, a popular grocery chain was out of cranberry sauce three days before Thanksgiving, and at least three other basic staples for a Thanksgiving dinner. Happens every year! You just want to shake someone at the top and say, “shouldn’t someone be minding the store?” This is not only a sale lost, it could also be a customer lost for years to come. In this harried world, consumers want to make one stop and get everything they need. When the store becomes known for stockouts, that consumer goes somewhere else. There exists technology today that will avoid the majority of stockouts. Retailers aren’t getting it or paying attention to it (except Walmart) and until they do, their profits will be less.

David Biernbaum
Guest
13 years 5 months ago
Having had the opportunity to discuss out of stocks last year with retail managers at an association Annual Meeting, I gained a better understanding of many hidden factors that cause the problems, even now with all the improvements. Here are just a few: 1. Overstock on a different item in the same category causes a traffic jam in the DCs. 2. Financial “flow” is a factor that causes manual interruption to automated systems. 3. Lack of hands-on management and human labor in the DCs to see through and execute. 4. Lack of sufficient human labor to execute back room to shelf. 5. Late ships by manufacturers which cause scheduling issues. 6. Unsold products in displays occupy real estate on a competitor’s item on the shelf. 7. Insufficient human help in replenishment purchasing management. 8. Using a system that simply has too many flaws not accounting for real world events and occurrences. 9. Using a system that simply has too many flaws not accounting for real world events and occurrences. 10. Not enough micro-management day to… Read more »
Carol Spieckerman
Guest
Carol Spieckerman
13 years 5 months ago

One retailer’s/department’s “out of stock” is another’s “snooze you lose.” Not every product is on auto replenish and the new rule at retail is “once is fine, twice is good, three times you’re out.” In other words, retailers are less inclined to chase demand and more inclined to SET demand these days; even if it means losing sales. How else can they train consumers to increase trip frequency? Fast-turning programs and limited availability drive trips–just ask Costco, Target, Urban Outfitters–yet this deliberate strategy’s data gets thrown in with the “OOS problem” stats.

Jonathan Marek
Guest
13 years 5 months ago

Paula’s comments are dead-on. This is a balance between different potential outcomes–being long inventory that needs to be marked down is no good either.

One other factor that I don’t think I’ve seen in the comments so far: shrink. In high shrink categories, it is easy to get a mismatch between systems and reality regarding in-stock position. One tactic some of APT’s clients have tested is to increase physical count frequency. This extra labor doesn’t have a positive ROI everywhere and on every product–but in the right products and stores, we’ve seen sales increases that easily pay out the incremental labor.

Cathy Hotka
Guest
13 years 5 months ago

IHL Group has it exactly right. The out-of-stock problem infuriates consumers and results in substantial losses year after year. This is the obvious “low-hanging fruit” issue for retailers to address in 2009. One way to tackle this is to appoint a Chief Customer Officer who can look at the retail experience from the customer’s point of view.

Paula Rosenblum
Guest
13 years 5 months ago

I’ve been giving this matter a lot of thought, and I have a somewhat contrarian view. While out-of-stocks appear to be constant, and are certainly a continuing issue, all the numbers around them that affect the POTENTIAL for out-of-stocks have been moving.

Merchandise Turn rises.
GMROI rises.
Days Inventory in the supply chain goes down.

The net of these three factors presumes the target for SKU level inventory is actually smaller.

When you look at it from that perspective, you could argue that out-of-stocks should have risen. The fact that they remain essentially the same says some progress has, in fact, been made.

I’m not saying this makes out-of-stocks less of an issue. I am saying there is a law of cause and effect at work here…and we ought to acknowledge it, instead of berating ourselves. We haven’t quite learned how to have our cake and eat it to…but we’re getting there.

Gene Detroyer
Guest
13 years 5 months ago
Retailers are very quick to blame manufactures for late or incomplete deliveries that cause distribution center out-of-stocks. But too often, the out-of-stock issue is not at the distribution center but at the store level. While the buyer gives poor marks to the manufacturers that cause distribution center out-of-stocks, the buyer tends to ignore the manufacturer’s reports of out-of-stocks at the store. I have experienced a drug chain that had over 40 weeks supply of product in one store and in another less than 2 miles away be constantly out of stock. Yet, the retailer refused to move the stock or change the reorder prompt in the OOS store. They “didn’t have a system to do it.” How often are Small and XL the only sizes left in a department store item? Surely, more sales are lost by not having Medium and Large than are gained by having Small and XL available. And that is not to mention the discount that will have to be applied to the Small and XL to clear it out of… Read more »
Max Goldberg
Guest
13 years 5 months ago

I’d like to add one more item to David’s substantial list: Out-of-stock by design. Some retailers do not want to take a chance on having unsold goods, so they deliberately order 92% of expected sell-through. This is particularly true of one major mass-market retailer. Their Sunday circular drops, you go to the store that day and the featured items are sold out.

Art Williams
Guest
Art Williams
13 years 5 months ago

The pressure on stores and DCs to reduce inventory is the main culprit. Retailers are playing a balancing game between the level of inventories and the level of out-of-stocks.

It is also very noticeable in stores like Walmart that the OOS levels are much higher on warehouse distributed items than they are on DSD. The obvious reason for this is that Walmart can be very demanding and unreasonable on their suppliers but aren’t willing to spend the money needed to reduce their warehouse caused OOS. A DSD OOS results in a phone call threatening the supplier if an emergency delivery isn’t made at once but a warehouse item gets a “we are out until our next delivery” response. And the average Walmart worker these days has an “I don’t want to be bothered” attitude. Makes one long for the days of Sam Walton.

Kai Clarke
Guest
13 years 5 months ago

The three worst words in retail are “outof stock.” They exist only because retailers do not pursue a full shelf strategy throughout their entire logistics cycle. Until retailers realize how important this is, OOSs will continue to negatively impact customer service, product availability, sales revenues and profits.

Mike Mohaupt
Guest
Mike Mohaupt
13 years 5 months ago

Out-of-stocks are something we continue to deal with prior to working with our clients. There are a variety of reasons for it but most often it is related to a system or process that looks at whole categories or aisles rather than individual items. Many retailers are carrying still far too much inventory but that is at the macro level. When a consumer shops for a particular item, it maybe out of stock.

This is why we developed inventory management tools that operate at the item level. Each item has a demand frequency that varies based on seasonality or other impacts. So the optimum WOS need to reflect that. Our SIAM web based analytical reports address this efficiently for retailers and suppliers.

Yes, out-of-stocks continue to exist. As long as cookie-cutter retail strategies continue to exist, these issues will persist.

Ted Hurlbut
Guest
Ted Hurlbut
13 years 5 months ago

From my experience, the biggest cause of out-of-stocks is garbage inventory data–garbage in, garbage out. The most sophisticated forecasting and replenishment systems will be brought to their knees with inaccurate store-level inventory data.

The problem is almost always one of execution. Let’s take checkout as just one example that everyone can identify with. We’ve all had experiences when the cashier couldn’t get the scanner to read the barcode, or the barcode was missing, so the item was rung up without a code, or under a completely different code. Garbage in, garbage out.

These aren’t systems problems, they’re human problems; management problems. A comprehensive, on-going cycle count regime can catch many of these errors, but still it’s only a Band-Aid.

It’s another example of the impact of store-level issues on the whole business, and the lack of focus, discipline and initiative of senior-level management to address fundamental people issues.

Mark Lilien
Guest
13 years 5 months ago
Most items in most stores don’t turn very well. The unit volume is fairly low per SKU, for most SKUs. So being in stock 100% of the time isn’t worthwhile because the safety stock needed would be excessive. And lots of SKUs have equivalents already in stock. Is it a disaster if 1 size of Miracle Whip is out of stock, if the store has 2 other sizes and 4 competing brands, each of whom come in 3 sizes? And if the item is a promoted best seller, maybe it’s a loss leader anyway, so every out of stock means a reduced margin loss. Yes, some shoppers get annoyed, but most retailers have similar performance issues. If the shopper is a perfectionist, she might quit you for awhile, but won’t she find that every store has something wrong on occasion? This doesn’t excuse mediocrity but face it: most stores are mediocre and that’s their goal. Most stores won’t pay for superior people or systems and their financial objectives are merely to meet the competition, not… Read more »
Dave Wendland
Guest
13 years 5 months ago
This continues to be one of the most critical–and unresolved–opportunities at retail. Regardless of retail channel, we have continued to see prevalence of out-of-stocks. New systems, enhanced training, and ongoing spotlights on this problem have yet to bring it to its death. Why can’t it be resolved? Much of this discussion underscores the inefficiencies which exist in the retail supply chain, lack of training at store level (e.g., execution to the last 16 feet to the shelf from the stockroom), misguided planogram maintenance and standards, and general lack of focus at the point of consumer decision. For our clients, we work with them to develop a customized list of NeverOuts® for their operation–these are the items in each category that they simply cannot afford to be out of stock on–ever. Is it a failsafe plan? Not entirely, but at least it puts emphasis where it belongs. My belief is that serious retailers who want to differentiate at shelf can accomplish it simply by being in stock. As pointed out, it’s a 20% sales advantage!
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