Preventing Lost Sales

Posted: November 27, 2018

According to a recent report from retail analyst firm IHL Group, retailers worldwide lose a staggering $1.75 trillion annually due to overstocks, out-of-stocks and needless returns. IHL’s research indicates the leading causes of out-of-stocks are:

• Empty Shelves ($238.1 billion)
• Inability to find help ($120.8 billion)
• Price/offer didn’t match ad ($74.1 billion)
• Staff couldn’t find merchandise ($68.1 billion)
• All other reasons ($131.5 billion)

“Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realize huge gains by addressing opportunities which are right in front of them,” says Greg Buzek, president of IHL Group. “These problems require more than data and business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the proper solutions … to address these revenue-limiting issues.”

Empty shelves are negative space. Out-of-stock items sends a message that either you can’t manage your stock, or you can’t afford to stock your shelves, which could be an indicator that your store is going out of business. Either way, it’s a position a retailer does NOT want to be in for any length of time.

Smaller retailers might proffer the argument that shelves are empty because it’s the end of the month, but shoppers don’t care about that. Consumers buy things when they need them and sometimes impulsively, and if a retailer doesn’t have the inventory, it will just propel shoppers to go to a competitor. So not only has the store lost sales, but it’s also lost customer loyalty. The cost to the retailer to an out-of-stock item is far greater than the loss of one sale.

Sometimes the supply chains fail. When this happens, placing a similar or alternative item, if possible, in the gaping shelf space could end up saving a sale and keeping the customer satisfied.

When faced with low stock, another alternative might be to fill in the gaps with stock you DO have in place of stock you don’t. Merchandise should always be placed at the front of the shelf, with labels facing outward for all eyes to see. This is an important job for store staff to undertake; they should constantly be looking at the merchandise on the shelves making the sure labels are easily visible.

But while these measures may temporarily keep the merchandise visible and appear to fill the shelves, they don’t address the big picture.

When shoppers go to a specific store for advertised items that are out of stock, other problems arise. While Lilly Pulitzer’s collaboration with Target initially seemed to be a great idea, the pair-up backfired when stock sold out immediately, which frustrated shoppers—especially when eBay was filled with their overpriced resales.

The IHL report also addresses “inventory distortion,” i.e. the combined impact of overstocks and under-stocks. The report notes the top three sources of inventory distortion are internal process failures (accounting for $284.9 billion in losses); personnel issues ($259.1 billion in losses); and data disconnects/systems that aren’t integrated ($222.7 billion in losses).

The right scheduling technology can certainly aid in part of this problem, but if a retailer’s systems aren’t connected, the problem doesn’t disappear. Inconsistent pricing and promotions across stores also mean a loss of $74.1 billion for retailers every year.

If big retailers addressed these problems throughout their organization, which account for almost 12% of lost revenue every year, that could mean the addition of $117 million in revenue for every $1 billion in retail sales.

Another important finding of the IHL report was that the average retail chain reported doing full stock counting only once a year, and that count was usually off by as much as 25%. It’s advisable, notes Buzek, for stores to take stock at least quarterly.

Even though getting a handle on these processes is challenging, the money-saving result can make the difference between a thriving business, and closing the doors.