What To Do About Retail Stockouts
Like it or not retail stockouts happen. In fact, a P&G study highlights that the industry average for retail stockouts are 8.3%. Beyond just losing one or two sales, there is a cumulative corrosive effect on your brand when customers encounter a stockout, or a sequence of stockouts. In consumer packaged goods research, a recent Repsly blog showed what happens when a customer encounters an out of stock situation (OOS), and how the response changes with frequency of OOS.
The graph, graciously provided by Repsly, shows that customers will make a substitution effort 69% of the time when faced with an OOS – when it happens the first time. So in 31% of these stockout cases the consumer either does not make a purchase, or switches to a competitor’s store. However, if the shopper encounters the retail stockout a second and third time, that walk-away or shop at the competitor occurrence increases up to 70%. In effect, shoppers are mostly forgiving of a retailer the first time an OOS is encountered. However, by the third time, most shoppers lose their patience with the store, and will go shop elsewhere or just won't purchase – not even considering an alternative.
Retail Stockout and the Brand Impact
It is not a big leap to imagine what a repeated retail stockout will do to a brand. There is a clear erosion of trust. Customers will simply stop believing the store brand can deliver on the promise of fulfilling their product order. The net effect on the brand is a new brand position. That being of a brand that disappoints by not having what customers want, or as being the brand that consistently disappoints.
What To Do About Stockouts
Although the Repsly research is based on grocery and CPG, a similar effect can be expected in the general retail space, as well. After all the consumers in both categories, are largely the same.
Victoria Vessella’s post on “How Stockouts Can Hurt Your Business”, recommends several supply chain optimization steps to control stockouts, being:
Identify high demand SKUs (perhaps stocking up on these),
Adjust delivery cycles to meet demand based on historics and seasonal fluctuations, and
Identify distributors who can acquire and deliver additional volumes.
To add to this list, retailers should also consider:
Improved Demand Planning software (like that of BlueRidge or JDA),
Ensure your order management system is providing real-time, location-based inventory visibility to customers, to cut down OOS frequency, and
Train sales staff to use order management to ship-to-store from other inventory locations and save the sale.
Key to Retail Stockouts
Retailers need to have an action plan, for retail stockouts. They are going to happen. Eight percent of the time, in fact. However, taking corrective actions to increase supply is one series of options, and improving your systems to either correct, or compensate – is another set of options. Use all options available, and have a plan to ensure a customer never walks away empty handed, or without knowing you had a solution to get their desired merchandise.
Remember, each time you fulfill a customer request, means one more time that you delivered your brand’s promise.
Charles Dimov is Director of Marketing at OrderDynamics. Charles has 21+ years experience in Marketing, Sales and Management across various IT and Technology businesses. Previous roles include Chief of Staff, Director Product Marketing, and Director Sales. Charles has held roles in brand name firms like IBM, Ericsson, HP, ADP, and OrderDynamics.
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