IHL details $600 million annual retail loss

BY Dan Berthiaume

Franklin, Tenn. – Out-of-stock merchandise is causing a significant drain on annual retailer revenue performance.

According to a new research report from retail analyst firm IHL Group, commissioned by OrderDynamics. Retailers and the Ghost Economy: The Haunting of Out-of-Stocks, retailers lose $634.1 billion in annual losses due to out-of-stocks.

Out-of-stocks are defined as any time the customer comes in willing to buy something and leaves without buying that item for any reason other than price. This can be due to product not being available, lack of access to the product or absent personnel to assist the customer.

According to IHL’s research, the leading causes of out-of-stocks are:

• Shelf is empty ($238.1 billion)
• Couldn’t find help ($120.8 billion)
• Price/offer didn’t match ad ($74.1 billion)
• Staff couldn’t find merchandise ($68.1 billion)
• All other reasons ($131.5 billion)

These problems have significant impact on a retailer’s bottom line too, resulting in a revenue loss of 4.1% for an average retailer, in addition to loss of customer trust and loyalty.

Technology can go a long way in helping retailers address many of these problems, but retailers must be careful to consider the implications of technology and connect all the data and systems throughout their organization. For example, IHL advises that out-of-stocks accounts for $129.5 billion in lost profits in North America. Leading causes are poor forecasting or planned scarcity. Ship-from-store can play a role in reducing out-of-stocks, but retailers must consider the strain this fulfillment method will put on their inventory management capabilities.

In addition, poor labor scheduling leads to $120.8 billion lost in sales worldwide and $29.6 billion in North America, simply because a customer could not find someone to assist them. Proper scheduling technology can help alleviate this issue, but if a retailer’s systems aren’t connected, this problem will still exist.

Furthermore, IHL cautions that inconsistent pricing across stores and promotions causes retailers to lose $74.1 billion each year. Much of this is due to siloed information and processes, as well as organizational disconnects. Connecting data across channels and business departments is crucial for retailers to eliminate pricing and promotional inconsistencies.


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Overtime Pay to Get Overhaul

The Department of Labor’s long-awaited proposed revisions to the “white collar” overtime exemptions are finally here — at least, in part. On June 30, 2015, the DOL unveiled its proposed revisions to the required salary levels for many of the “white collar” exemptions to the FLSA’s overtime requirements. (The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state and local governments.)

The DOL proposes that the required salary level for the administrative, executive and professional exemptions be increased to match the 40th percentile of weekly earnings for full-time employees. Practically, this means that the DOL has proposed increasing the current minimum salary of $455 per week (or $23,660 per year) to about $970 per week (or $50,440 per year) by the time the Final Rule is issued in 2016.

In addition, the DOL proposes increasing the required salary for the highly compensated employee exemption to equal the 90th percentile of weekly earnings which, in effect, increases the exemption’s salary threshold from $100,000 annually to about $122,148 annually.

The DOL has further proposed that the minimum salary thresholds be automatically adjusted upwards on an annual basis “to make sure that they maintain their effectiveness” by using either a percentile of weekly earnings or inflation. The Obama Administration estimates that more than 4.5 million workers will become eligible for overtime under the DOL’s proposed revisions, and that number will grow every year as the minimum salary threshold increases annually.

The DOL did not make any specific proposals, at least for now, to change the duties test for the “white collar” overtime exemptions. The DOL did, however, request public comment on whether changes should be made to the duties test and what those changes should be. Remarks by President Obama and the Secretary of Labor indicate that they are particularly concerned that the current exemption tests allow for the exemption of employees (especially retail managers) who are performing too much nonexempt work.

Accordingly, the DOL sought comments (the comments were due on Sept. 4, 2015) related to time spent on nonexempt duties and how that should impact the duties test:

  • Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
  • Should the Department look to the State of California’s law (requiring that 50% of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50% of an employee’s time worked a better indicator of the realities of the workplace today?
  • Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately, or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?

The DOL’s request for comments about the duties test signals that significant changes could be forthcoming when the Final Rule is published. Notably, to the extent the DOL changes the duties test when the Final Rule is published, its failure to effectively announce such changes now could lead to litigation challenging the DOL’s formal rulemaking compliance. At a minimum, the lack of clear guidance from the DOL will prevent employers from making final decisions about potential reclassifications prior to the issuance of the Final Rule.

On July 6, 2015, the proposed rules issued by the DOL were published in the Federal Register. The DOL established a 60-day period for the public to submit written comments to the proposed rule — these comments can be submitted electronically through the Federal Rule-making Portal or by mail. It is anticipated that the new regulations will become law in mid-to-late 2016.

RETAIL IMPACT: The DOL has only issued proposed revisions to the “white collar” overtime exemptions (until the Final Rule is published). Ultimately, however, it is expected that there will be some significant increase to the salary level for the “white collar” overtime exemptions.

Accordingly, retail businesses should consider the impact of the expected increased salary level on currently exempt employees earning less than $50,440 annually. It is likely that many retailers will need to reclassify as nonexempt some employees for whom complying with the new salary test is not feasible. Retailers should start reviewing their organizational structure to identify employees who can remain exempt and those who might need to be made hourly.

In addition, retail businesses need to have an understanding of the increased financial burden from the proposed regulations. The proposed regulations may significantly impact the retail industry, especially if the Final Rule forces retailers to reclassify exempt store-level managers to hourly nonexempt employees.

It would be wise for retailers to start analyzing the impact of the proposed overtime exemption changes on their bottom line now, so contingency plans can be considered and prepared in advance of the publication of the Final Rule.

Jacob Modla is a partner focusing on retail issues in the Charlotte, North Carolina, office of Littler Mendelson. Tracy Stott Pyles is a partner focusing on wage and hour issues in Littler Mendelson’s Columbus office.


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The Hard Side of In-Store Mobile


Retailers are certainly attuned to the importance of mobile technology in today’s store environment. Customers who live mobile-enabled, “constantly connected” lifestyles expect the seamless mobile-physical overlap that exists in other parts of their lives to also be readily available when they enter a store.

However, when designing an in-store mobile experience, retailers typically focus their efforts squarely on the software side of the equation. Brad Fick, president, partner and co-founder of in-store technology provider Direct Source, recently took some time to discuss why retailers need to pay more attention to the role mobile hardware plays in the modern store landscape.

Are retailers ignoring the continuing importance of hardware to store operations?

Now more than ever, retailers understand the importance of hardware to store operations. Omnichannel retail strategies have expanded beyond simply knowing how the consumer shops. They have transformed into understanding how to use digital signage, messaging, in-aisle assistance and checkout solutions that equate to customer satisfaction, sales and purchasing. These are all key drivers in helping retailers predict future behavior.

What should retailers look for when selecting in-store technology hardware solutions?

Mobile payments will always be a key driver for most retailers, enabling them to assist shoppers from anywhere in the store. Line busting, price checkers, store maps and brand management are all added benefits to upgrading and installing customized in-store technologies. Other critical factors include ease of use for store associates, decreased training times and intuitive applications.

How can retailers leverage mobile hardware solutions to improve the in-store customer experience?

Retailers are currently exploring how consumers interact with their brands prior to having an in-store shopping experience. For example, knowing how consumers use digital channels such as websites, smartphones, tablets and social media to research the retailer’s product service offerings can drive how retailers market and interact with customers.

Understanding customer expectations for both the digital and in-store experience, whether consumers prefer to shop independently or want a sales associate to greet them and provide service, is now a significant focus for retailers. Many retailers are also equipping associates with mobile devices that provide access to detailed, interactive data, allowing them to provide a personalized in-store experience to the consumer.

What are the advantages of renting, as opposed to purchasing, in-store hardware solutions?

As retailers adapt to mobile trends, they are learning that staying ahead of technology can mean upgrading devices every six to nine months. Hardware-as-a-Service (HaaS) makes cost justification easier, while enabling chain-wide rollouts of the newest devices. Benefits to these programs include flexibility, buyback programs, trade-ins for existing hardware, fair market leasing and recycling. For any program such as these, it is best to have a partner that can help manage the financial aspects so retailers can focus on the consumer and their needs.

How does Direct Source help retailers meet their in-store hardware solution needs?

Direct Source takes a consultative approach to uncovering the right technology solution for each retailer, using its goals, objectives, future strategy, pain points, and retail initiatives and requirements as a guide. Our long history in the retail sector means that we can provide unbiased and in-depth product knowledge and reviews. We also focus on delivering solutions that are designed to future-proof technology investments.

To stay current with the rapidly evolving technology and mobile trends, we work closely with our manufacturing and technology partners. We also work with retailers to create a digital map of how consumers use digital tools and devices to shop even before walking through the door.

We help retailers determine what they can do with consumer insight around these behaviors and how it directly impacts the store footprint. The team then works directly with the major mobility companies to design new products for the retailer’s needs.


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