Even in this rapidly changing world of retail, one of the keys to customer satisfaction is one of the most basic: on-shelf availability (OSA). As a consumer myself, I know the disappointment of arriving at a store only to find that the product I am looking for isn’t in stock. This problem is further magnified for brick-and-mortar retailers now that almost any out-of-stock product can be easily obtained through e-commerce sites.
But even though consumers can easily obtain unavailable products by navigating to a website with just a few clicks of a mouse or swipes of a touch screen, retailers continue to run an average of 7% out-of-stock (OOS). How does this problem manifest itself? And more importantly, how can we address it?
We know that not having the right product on the shelf at the right time can significantly decrease customer loyalty toward the retailer involved. When OOS occurs at a store, customers most likely will take one of the following actions:
- Substitute the product with a different brand
- Substitute the product within the same brand
- Delay the purchase
- Leave the store and make a purchase elsewhere
- Make no purchase at all.
If the retailer is lucky, a customer will substitute with a similar brand or product within the store, or come back later. However, according to “Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses,” “retailers are likely to lose almost one-half of the intended purchases when a consumer confronts an out-of-stock.” No matter what option a customer decides to pursue, the fact that they are put in this situation in the first place automatically lowers their perception of that retailer.
For retail organizations, accurately measuring and controlling the OSA at individual store locations helps guarantee that customers are able to make a purchase when compelled to do so. Maximum sales can only be achieved when the right products are on the shelves at the right time. With appropriate inventory levels and OSA, customers can purchase the merchandise they want and when they want it, ensuring they leave happy, satisfied their market basket is optimized, and amplifying the chance of repurchase.
Don’t lose a customer over toothpaste
The leading cause of OOS is inventory distortion. There has always been some inherent inventory distortion built into retail, and it can occur for many reasons: Inventory is miscounted or entered into the system incorrectly, merchandise is stolen, damaged, or scanned incorrectly at point of sale (POS). Some products are not properly removed from the inventory system. However the inventory distortion occurs, retailers must deal with the same end result: The product is not on the shelf for the customer to purchase.
Examine this from the perspective of a consumer making her weekly grocery-shopping trip. Toothpaste is on her shopping list, but when she gets to the personal care aisle, her favorite kind isn’t in stock. Though about 69% of customers will choose to substitute or come back at a later time, the retailer will still lose sales from the 31% of customers who choose to go to a competitor. More important than the lost sale is the fact that the customer will leave a little less satisfied, a little less loyal, and over time that grocer may lose that customer and all her future purchases. To truly stop the inventory distortion problem, it must be thwarted at its root cause.
Measure and reduce inventory distortion
Retailers must be able to measure and identify trends in their data that can lead to inventory distortion. This allows them to quickly identify when inventory sales are not meeting benchmark levels. Some retailers may even consider using closed-circuit television combined with pattern recognition software to identify the segments and pinpoint the exact register, date, time and employee, self check-in process or other processes involved in these excessive numbers.
By identifying these trends, retail organizations can implement best practice solutions such as re-training on proper scanning methods at the register. Correcting these process errors from the POS translates as well as other patterns in the supply chain to accurate inventory levels and better OSA, and ultimately a happier, more loyal customer.
Guy Yehiav is CEO of Profitect.
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