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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