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Building upon previous research from IHL, this research study looks at the true cost of Inventory Distortion (Out-of-Stocks and Overstocks) to retailers worldwide. Beyond just looking at empty shelves or the discount rack, this report brings clarity on the size of the problem that heretofore had been missing in the industry.
Retailers historically rely upon their IT systems to tell them what their Out-of-Stock levels are. While this might be a satisfactory solution for the enterprise as a whole, it does not take into account the realities faced by retailers and consumers at the store level. A retailer’s systems may cite a 6% Out-of-Stock level, but the consumer, having been in three of their stores before finding the item, sees an Out-of-Stock level that is often 3 or 4 times this figure. The difference is retail execution, ie, having the product available and accessible at the point of decision when the consumer wants to buy it. Anything else is a missed opportunity.
Likewise, for their Overstocks, retailers tend to rely upon their IT systems, which can provide a very different view from what the store manager or consumer is experiencing. The big issue here, however, is that the cost of those goods are lost forever; they provide a severely red contribution to the bottom line for these retailers.
The regions and retail segments addressed in this study can be found at the FAQ tab. For an outline and sample pages, see the Preview tab.
The report is designed for use by Retailers, Software and Service Providers and others who might have a vested interest in the merchandising problems found in retailers worldwide.
In total, Inventory Distortion costs retailers collectively nearly $1.1 Trillion globally. Or put another way, same store sales could increase 7.5% if this problem was completely fixed. Some Key Highlights include the following:
- Inventory Distortion costs retailers nearly $158 for every man, woman, and child on the planet.
- Over $252.3B a year is the cost of Inventory Distortion in North America, an amount the equivalent of the annual revenues of Kroger, Home Depot and Target combined.
- The Asia/Pacific region contributes 39% of all inventory distortion.
An Out-of-Stock is a lot more than just an empty shelf. In the mind of the consumer, an Out-of-Stock occurs any time they come into the store ready to buy, but leave without purchasing an item for a reason other than it is priced less elsewhere.
Here are some of the Out-of-Stock problems noted by consumers:
- Empty Shelf
- Product locked up or on too high a shelf and no one to help
- Found someone to help, but they can’t find merchandise the system says is in-stock.
- Price on the shelf doesn’t match the price online or in the ad
- Some other reason not related to price.
An Overstock, on the other hand, is any situation wherein a retailer has on hand more stock of a particular item than is supported by current demand for that item. The two main resolutions for these Overstocks are discounting and spoilage, one of which must take place to reduce that Overstock.
Both Out-of-Stocks and Overstocks are a problem with execution, with the result being either a sale lost to that retailer’s competitor (in the case of an Out-of-Stock), or a hit to the retailer’s bottom line (in the case of an Overstock).