Out-of-stock is a huge concern for retail. According to a recent survey, 24% of shoppers are going to cut their spending on groceries.
This means that people will be more careful in choosing goods and there will be fewer impulse purchases. Thereby, the competition for buyer’s attention will become even tougher.
Therefore, it is essential that customers always find in the store the products they came for. Unfortunately, in the same survey, a fifth of people faced a situation where the desired product was out of stock. And up to 43% of buyers in such a situation are ready to go to another store for shopping.
For outlets and manufacturers, customer going away = loss of profit. According to some estimates, the business loses up to 4% of sales. This article is to analyze why out-of-stock occurs and how to deal with it.
Table of Сontents
What is Out-of-Stock and Its Consequences
Out-of-stock is the lack of goods in the store: on the shelf or in the warehouse. Note that out-of-stock refers only to situations where the product is accounted, the shelf has a price tag on it, but the product itself is not displayed on the shelf.
The consequences of such scenarios are sad: loss of profit, customers leaving for competitors, a decrease in the shelf share.
Loss of profit. Retailers, distributors, and manufacturers suffer from out-of-stock. Visitors to the outlet cannot buy the missing product, which means that the business is losing money.
Leaving for competitors. If the missing product is a frequent occurrence, then buyers may prefer your competitors. In the case of a retailer, they will visit another distribution network, and in the case of a manufacturer, the buyers will choose another brand. After all, people want to buy everything they need from their list at a single location, and not chase the goods in various stores after work.
Decrease in shelf share. For a retailer, empty shelf space = loss of profit. Therefore, if there is no product of a certain manufacturer in the warehouse, then this share of the shelf will pass to a neighboring competitor. This is bad for the manufacturer, since restoring a shelf share is more difficult than maintaining it.
In addition to financial consequences, the customers’ trust and loyalty are lost or significantly reduced. Let’s see why out-of-stock occurs and how to avoid such situations.
Why Out-of-Stock Situations Occur
The main reasons why a product is not placed on the shelf are improper logistics planning or demand forecasting, including wrong actions of the supplier or distribution network.
Forecasting. Demand forecasting cannot be 100% accurate and the store may run out of stock earlier than necessary. Reasons for higher demand may be promotions, seasonality, holidays, force majeure.
Example. Pipes burst in a certain quarter, so utility service providers cut off water supply. Accordingly, people go to the shops to buy a supply of drinking water. A small store will quickly run out of water, while a hypermarket has more stock. So, the convenience store loses customers because it could not predict higher demand.
Failures at the point of sale. Due to the fault of the retailer, goods may not be displayed on the shelves in several cases: incorrect calculation of the minimum stock, omissions of store employees, incorrect accounting of goods and delay in payment for deliveries.
The store may incorrectly estimate the stock balance which should always be available. There are occasions when the goods are in stock, but store employees just do not have time to put them on the shelves. This happens most often during busy hours with the most popular goods (dairy products, bread), when there are a lot of buyers and not enough employees.
Another problem is inaccuracies in the accounting of the store itself. In this case, the store does not make proper inventory and does not know how much product is left in stock. Also, the store may delay payment to suppliers, so suppliers may suspend the delivery of goods.
Supplier omissions. On the part of the supplier, the main issue is supply chain bottlenecks: schedule delays, deliveries in wrong amounts, violation of storage conditions. This is critical for perishable goods. The supplier delivers the batch in the right amount, but some of the goods are already damaged.
How to Deal with Out-of-Stock
To avoid or minimize out-of-stock situations, you need to understand the reasons why the product is missing on the shelf.
Step 1. Analysis. First of all, you need to analyze how often out-of-stock situations occur, what products are out of stock, how long it continues, what are the losses for the business and, most importantly, why the product was missing on the shelf.
Step 2. Inventory reconciliation. Inventory reconciliation will help you know exactly how much product is in stock when you need to place an order. This will optimize deliveries and avoid situations where the stock balance is zero.
Step 3. Minimum balance. You should reconsider the minimum balance which should always be available. Perhaps the sales volumes are higher than the volumes that can be covered by the balance until the next deliveries.
Step 4. Shelf audit. Continuous monitoring of shelf display allows stores to minimize out-of-stock and deliver goods to the shelves on time. Moreover, it also helps to understand how often the product is out of stock, whether planograms are followed, etc.
Missing Goods on the Shelf is a Pressing Issue of Retail
All the efforts of retailers, distributors and FMCG manufacturers are aimed at capturing the attention of the buyer. This is a constant struggle where even small mistakes can result in big losses. Especially if these mistakes are often repeated.
Chronic non-availability of your favorite brand of milk in the store will anger even the most loyal customer. And no loyalty programs will keep him. Therefore, the out-of-stock metric is essential for business. In order to manage it well, the business uses various solutions to keep records of stock balances, monitor compliance with planograms, reliably analyze sales and track customer behavior.