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The cost of out-of-stocks rises up the agenda

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The cost and significance of out-of-stock items rises up the agenda this week, with two new studies devoted to the issue.

Retail analyst IHL Group puts the global cost of out-of-stock at £419.9bn, including £108.4bn lost in profits in Europe, the Middle East and Africa, in its study for OrderDynamics, Retailers and the Ghost Economy: the haunting of out of stocks. That’s up from £290.6bn in 2012.

The report, which defines out-of-stock as any time the customer comes in willing to buy something and leaves without buying that item for any reason other than price, breaks down the costs against the potential reason. Of the £419.9bn total, £157.7bn is down to empty shelves, £80bn is because help wasn’t available, £49.1bn came when an advertised price or offer wasn’t available, £45.1bn when the stuff couldn’t find the merchandise, and £87.1bn was down to “all other reasons”.

Meanwhile, the Out Of Stock Paradox, from GT Nexus, in association with YouGov, finds 83% of UK consumers have gone into a store to buy a particular item and found it unavailable. The same has occurred for 70% online. When that happened in store, 57% of shoppers said their first-choice retailer lost the sale, with 65% going elsewhere or not buying at all when shopping online. A third of disappointed shoppers (33% in store, 34% online) said the product they wanted to buy but could not was an item of clothing or footwear.

For GT Nexus this is a supply chain problem. “Stocking the right goods, at the right time, at the right place, in the right quantities is an enormous coordination effort – but that is what today’s shoppers have come to rightly expect,” said Boris Felgendreher of supply chain specialist GT Nexus. “Modern supply chains are very complex and often involve hundreds of trading partners. While retailers continue to invest in the front-end of their business – the customer facing web sites and in-store promotions, they are lagging in their ability to execute the movement of goods; the ability to sense and respond to demand through greater inventory visibility and intelligence. To remain competitive, savvy business leaders are starting to embrace cloud technology so that they can not only collaborate with their trading partners in real-time, but also respond to sudden bursts in demand.”

OrderDynamics also sees the solution in the cloud. “There is a great deal of industry discussion around customer centricity,” said John Squire, president, OrderDynamics. “Retailers are spending time and analysis trying to determine how to attract and retain customers and yet have a long way to go to reduce out-of-stocks and the resulting customer disappointment. As retailers enter the most important part of the year, it’s important to recognize that they can still take steps to reduce out-of-stocks with fast-to-implement SaaS technology and connected data.”

The IHL/Order Dynamics study is available to download here while there’s a infographic illustrating the Out of Stock Paradox here.

Image:, by montego6

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