Study: Online retailers losing billions in sales to out-of-stocks


Out-of-stocks are a problem for retailers that may be almost twice as bad online than in stores. That’s the conclusion of new research from the Grocery Manufacturers Association (GMA), which found sites across the globe could be losing billions in sales every year because products aren’t available online when consumers wish to purchase them.
The report, “A Worldwide Study of Extent, Shopper Reactions, and Implications for Non-Food Online Retail Categories,” written by Daniel Corsten, professor of operations and technology and IE Business School, and Thomas Gruen, professor of marketing at the University of New Hampshire, tracked online product availability of baby care, fabric care, hair car, oral care, skin care and shaving products on websites operated by retailers in China, France, Germany, Japan, the UK and the U.S.
“This is one of the first studies on online availability after previous reports over the past decade studying on-shelf availability and its effects on consumer purchasing patterns,” said Keith Olscamp, director of industry affairs and collaboration at GMA, in a statement. “The findings should encourage retailers and brands to collaborate and enhance online availability in the fast-growing area of online retail.”
The GMA research found that out-of-stocks on the categories covered in the report was 15 percent online compared to 8.3 percent in physical stores.
The somewhat good news for e-tailers in these findings is that, unlike consumers in stores who will walk if a product is out-of-stock, those same shopping online are more likely to look for a substitute product rather than going to another site or a physical location.
Despite the silver lining, the report finds that both online retailers and brands are hurt by out-of-stocks, with U.S retailers taking “25 percent of the adverse consequences compared to 35 percent for brands.”
DISCUSSION QUESTIONS: Do you see out-of-stocks as a significant problem for retailers selling online? Are the solutions for avoiding out-of-stocks different online than in stores? If yes, how?
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28 Comments on "Study: Online retailers losing billions in sales to out-of-stocks"
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Founder, CEO & Author, HeadCount Corporation
Out-of-stocks are a conversion killer – online or offline. Offering the proverbial endless-aisle of product online is relatively easy, but managing the inventory and distribution logistics effectively is hard. All retailers need to manage out-of-stocks and there are plenty of solutions to help them do that. However, beyond “solutions,” retailers need experienced personnel to execute.
Vice President, Strategic RelationsHamacher Resource Group
This is indeed a legitimate problem for online retailers — despite the theoretical silver lining referenced in this article.
I’ll be discussing this and other inventory issues at the upcoming ECRM Healthcare conference. Managing availability across the supply chain (whether online or brick-and-mortar) has been an age-old problem for retail. With expansive inventories offered online this problem is further accentuated and, yes, it is a significant issue affecting shopper satisfaction, retail experience and loyalty.
Strategy Architect – Digital Place-based Media
Consumers easily pivot to an alternative in out-of-stock situations. The wounds of disappointment heal quickly as they discover other options. The big harm is to brand loyalty in this “if you can’t do it, I’ll go to somebody who can” world. Too many out-of-stock experiences erode any confidence that the consumer wants to have in the online or retail location. It bears noting that Amazon is very aggressive in monitoring consumer perception of third-party fulfillment.
Principal, Retail Technology Group
This points to some of the basics of retailing about which few people and publications are talking these days: merchandise planning, automated replenishment and inventory management. If retailers don’t do these things correctly, it matters little with what customers they engage on a highly-personalized basis. I would think that it is easier to stay in stock in distribution centers — where quantities of any one SKU are larger than in individual stores – than it is to stay in stock in stores. However, if a retailer is out of stock across the enterprise, but a purchase order has been placed with the supplier, it is possible to let the online customer know that the item will be available on a specific date (depending on the reliability of the supplier) and try to avoid the cart abandonment/save the sale.
Vice President of Marketing, OrderDynamics
I completely agree with Mark. Out-of-stock is a conversion killer in-store. For orders that get shipped to the shopper, out-of-stock raises the RSO (Retail Ship:Order) ratio that kills margin. RSOs over 1.0 means you are shipping multiple boxes for each order placed. That means the retailer is picking up that expensive last-mile shipping cost.
Nothing can replace a solid demand planning forecast. But forecasts will always be wrong (even the best of us cannot predict the future). Retailers committed to omnichannel can mitigate some of the impact of out-of-stock with endless aisle, solid order routing and other techniques. To keep your RSO down, look to make sure your retail technology has order consolidation turned on.
Managing Director, GlobalData
I suspect that the numbers are actually worse than this study suggests because many grocers will show a product as being available but will then, when it comes to picking it, will find it is isn’t and will substitute an alternative.
Needless to say, all of this frustrates consumers and erodes loyalty, conversion and spend.
Board Advisor, Light Line Delivery
Out-of-stocks are a material issue for retailers. Consumers today are list-driven; having what you say you have, or what a consumer expects you to have in inventory is critical. Brick-and-mortar retailers require a holistic approach to maintaining high inventory accuracy. In-store, merging RFID, video, location and POS data with machine learning can yield incredible results of inventory accuracy, nearing 100 percent perpetually. This allows for smarter replenishment models, which leads to higher customer satisfaction and conversion, thus higher revenue, for in-store shoppers; while also realizing almost guaranteed hit rates for BOPIS and ship-from-store orders. The store needs to be digitized too.
Head of Experience Design, Tribal Worldwide London
Having gotten to the point of deciding to buy and then finding out what you want is out of stock makes for a frustrating experience. Some brands are using tricks online such as “Email me when a product is back in stock” but how well this works is unclear.
Having a handle on inventory and supply chain could help the online experience by providing a level of context of when something may be back in stock. Though I suspect out-of-stocks mostly appear when the sales are on and stock is being cleared, thus wont be returning. In which case being visibly proactive in suggesting relevant substitutes could help those who do look for substitutes, as George mentioned in the article.
VP of Strategy, Aptos
Principal, Frank Riso Associates, LLC
First of all I find it interesting that the Grocery Manufacturers Association is doing a study regarding non-food when most of their members are food manufacturers! It seems self serving to me for the grocery industry to keep customers shopping in stores. That being said, I do see out-of-stocks for online retailers as a major problem since availability is one major reason to shop online. The same solutions of inventory management apply online as they do in-store, it is more a concern for the proper control of inventory at the warehouse and/or distribution centers. We are seeing the result of pure online retailers ignoring the solutions for inventory management thinking that they can manage inventory without solutions since they do not operate stores.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
I am astounded by the study. Theoretically, out-of-stocks should not be a big issue for online retailers. The inventory is consolidated, the data is available, most of the inventory process and processes are automated. What am I missing?
The other thing that surprises me is my own experience. I am sure I have run into out-of-stock issues when ordering online, but honestly I can’t remember one.
Founding Partner, Merchandising Metrics
This is indeed surprising. When an item is posted there is some kind of data suggesting average rate of sale. And inventory at that moment is known (right?). Why not head this off at the pass when inventory is critically low? Airlines post “only 3 seats left at this price.” Hotels post “only 2 rooms available on this date.” Amazon posts low levels of inventory. The systems and the knowledge are there to deal with this. Is suggesting an alternative deemed less frustrating than removing the item and not being able to find it at all?
Out-of-stocks are a significant problem for all retailers not just online merchants. Accurate inventory levels are key and, at least in apparel and shoes, with increasing free returns there is only more inventory moving around many different locations at many different times. Prior to significant online purchasing lower return rate items would not disrupt inventory levels significantly but now due to BOPIS and, more importantly, accepting returns in-store for web purchases (again with a focus on apparel) the ability to understand how much inventory should be kept in-store vs. at an online DC is cloudy at best.
More choices for consumers is great but retailers need to vastly improve the “right item, right time, right place” equation if they are to increase revenue without speeding up turn to ridiculous levels or losing sales. Lastly, out-of-stock is out-of-stock whether for online or brick and mortar — omnichannel is omnichannel so solutions need to take both online and in-store into account.
Global Retail & CPG Sales Strategist, IBM
As a guy who has been in retailing since 1976, I can tell you that managing out-of-stocks has been a perennial challenge since then. And “all the King’s horses and all the King’s men” cannot seem to move the needle. The numbers found in this study are almost exactly the same as a study in the ’90s that I remember.
Online and offline, out-of-stocks are the single largest factor in driving optimized revenue achievement. This will not change until we take this seriously. First, we need to take the human error factor out of the equation. There are tools in the marketplace today that can more than make up for the human touch. A couple innovative retailers are implementing these tools and leveraging AI as we speak.
Co-founder, CART
I’m with you, Ralph. Technically, this should be a relatively easy problem to solve with all the technology and tools available today. The majority of supply chain is predictions and handling repetitive tasks. As technology can take on more and more of those roles, humans can go back to supporting customers and more custom interactions.
Global Retail & CPG Sales Strategist, IBM
Great points, Sterling!
Co-Founder and CMO, Seeonic, Inc.
Out-of-stocks are a problem for any retailer including e-tailers. Disappointing a customer continually is not a good thing. It will lead to an eventual loss of trust and sales. Even though online shoppers might purchase another item more easily when their preferred item is out of stock, the disappointment factor will eventually cause consumers to shop somewhere else. The solution to this problem in stores or online is to have a complete and accurate inventory of all items being sold and building replenishment systems that are paired with the inventory systems. The advantage that e-tailers have is they can ship to anywhere from common storage locations whereas the retailer may be required to have the items in a physical store for BOPIS customers. On the other hand, the fact that retailers are having half of the out-of-stocks that e-tailers have, means they are currently better positioned with inventory than e-tailers.
Content Marketing Strategist
To avoid frustrating consumers with out-of-stocks that reduce sales and erode loyalty, retailers have a few options:
Proactive preparation can help retailers offer sufficient product quantities and prompt service that improve the customer experience.
Editor-in-Chief, CPGmatters
So much for all the hype about the endless aisle. The rate of out-of-stocks in stores has been about 8 percent for as long as I can remember. I wonder how long out-of-stocks online will stay at 15 percent.
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
CFO, Weisner Steel
“…Sites across the globe could be losing billions in sales every year because products aren’t available online when consumers wish to purchase them…”
And other sites are picking up billions because of it. Perhaps I’m missing something here, but unless there’s some mass outbreak of incompetence, OOS simply shift buying from one retailer to another. I don’t see how it hurts a brand, nor why (therefore) a brand would be interesting in “collaborating” (Of course if EVERY retailer is out of your product(s) that’s another issue: you’re either wildly popular … or not popular enough).
As for whether or not the issue is fundamentally different at online “stores,” intuitively I would think it would be less of an issue, since there’s no problem of allocating inventory b/w locations — tho an e-tailer with multiple distribution points could face that problem — but I suppose it fits well with our perception of a genius who sets up brilliant business plan … and then fumbles the implementation.
Wonder how all this is calculated….
Retail Transformation Thought Leader, Advisor, & Strategist
Vice President of Marketing, Paper Mart
Being out-of-stock is an issue in any channel. If you don’t have what the consumer wants, you’re losing money. In the ecommerce space, you can often retain the sale by displaying the expected in-stock date and placing the item on back order; options you don’t have in retail. It all depends on the how fast the customer needs the product and if they’re willing to wait. Where ecommerce often fails is when they allow you to complete the purchase, but then cancel out-of-stock items through a follow-up email. Not a good customer experience! Providing real-time inventory onsite is critical to setting the right customer expectation.
Vice President, Research at IDC
The study is interesting that it addresses non-food retail, critical to most groceries due to sales of at least 2-3 aisles of products such as baby food, detergent or toothpaste. I’d love to see the out-of-stock comparison between food and non-food — but the study was sponsored by P&G.
Out-of-stocks are problematic, online or off. The study touches on online consequences of out-of-stocks such as lost sales and substitution effects. Many on this thread have already captured the basics, but I only saw one note about demand planning. Out-of-stocks happen when supply doesn’t meet demand at the point of purchase.
Nikki Baird nicely captured the actual and perceived out-of-stock (OOS) concept and herein lies the rub for the difference between online and offline OOS. In the online world, availability is what you display on the web page where delivery dates can be shifted to accommodate a fast-track back order. In the store the out-of-stock is real for the customer because expectations are immediate.
Senior Director Industry Development Retail Grocery, GS1 US
GMA’s report is eye-opening for the dozens of innovative companies working to effectively converge their digital and physical offerings. Collaboration between brands and retailers will be important to enhance online availability, but only if they are willing to create the systems interoperability needed to deliver real-time inventory data to consumers. Fully maximizing the consistency of a collaborative, standards-based framework will lead to faster data sharing, better quality data being shared, and a holistic offering for the consumer who views shopping as just shopping, not online or offline.
Retail Solutions Executive, Teradata
Much of the disparity I have found is the additional stress new models are putting on old systems and processes. If click and collect platforms are not connected to physical store inventory, in real time, then you always run the risk of the product not being available when the picker goes to select the item. Better forecasting and demand management capabilities (including new data models) must be developed for this new “phygital” economy.