By Jeff Weidauer, firstname.lastname@example.org
Talk to anyone who has been in the retail business for a while, and they will tell you that the world has changed, and continues to do so. Technology is changing daily how shoppers think about the trip, how retailers track sales and shopper behavior, and the way CPG manufacturers approach category management. Metrics abound, and the seemingly simple business of retail now depends on complex algorithms and data analysis to grow and profit.
Despite the availability of myriad data solutions, challenges remain; not all of the problems have been solved. Perhaps the biggest — and possibly most misunderstood — is the problem of out-of-stocks at retail. A number of studies have been done over the past decade or so; OgilvyAction, GMA, and IHL Group have all looked at the problem of out-of-stocks, and found that significant opportunity remains for retailers in this area.
The food industry average, based on numerous analyses, is estimated to eight percent of the total store that is out-of-stock at any given time. That should be an alarming number — in a typical 40,000 SKU store this equates to over 3,000 products. But that’s only the tip of the iceberg. Shopper perception is closer to 25%, i.e. shoppers see a much greater problem because the items that are out-of-stock are more frequently on sale or otherwise high-demand items.
In fact, an OgilvyAction study estimates that 13% of shoppers leave the store without making an intended purchase. The GMA estimates that 25% of out-of stock items are in the store, just not on the shelf. Further, fully three-quarters of out-of-stocks happen in-store, meaning they aren’t caused by supply chain problems. These out-of-stocks all equate to roughly 4% of total sales, never mind the dissatisfied shoppers who eventually move to another store.
There is a compelling case here to do something about reducing the incidence of in-store out-of-stocks. Solving the problem — or at least the majority of it — will take some time and resources, but the return on that investment promises to be significant.
The first step is to define and understand the problem at the store level. This is where the majority of out-of-stocks are originating, and there are a number of possible causes.
As stated previously, as much as 25% of out-of-stock items are actually in the store, but not on the shelf. Typically this is caused by one of three scenarios:
The primary cause of all these “in-store out-of-stocks” is poor planogram compliance, according to numero