Out of Stocks: A Hidden Crisis in Retail

When shelves are empty, people clearly notice. While that's a problem, the bigger issue is what people are missing before that empty shelf becomes apparent. Let's look at that for a minute.

As a retail inventory management professional, you know better than anyone the frustration of out-of-stock items. It's a problem that impacts everyone: customers leave disappointed, associates struggle to provide a good experience, and stores lose valuable sales. Therefore, addressing out-of-stock issues is essential for maintaining customer loyalty and improving overall store performance.

But how?

It's not like you haven't tried to solve this problem before. No one is ignoring it. Yet, it seems increasingly difficult to get a grip on it, even as supply stabilizes.

In my experience, it's hard to know the best next move if you don't understand your stakeholders' expectations. So, let's analyze what they've been saying the past few months.

The Customer's Perspective

When customers walk into your store and don't find what they're looking for, it's more than just an inconvenience. It's a broken promise. Product availability is the number one consideration for shoppers when they decide where to buy according to those who participated in Zebra's latest Annual Global Shopper Study. This isn't just a minor hiccup in their shopping journey; it's a major factor that influences their overall perception of your brand.

Each time a customer faces an out-of-stock item, it chips away at their trust. They begin to question whether your store can meet their needs reliably. This disappointment often leads them to turn to competitors who can promise better availability. In fact, out-of-stock items are the top reason customers say they leave a store without making a purchase, and it ranks as their third biggest concern about the state of retail overall right now. These lost sales aren't just numbers on a spreadsheet; they represent missed opportunities to build lasting customer relationships.

The Associates' Challenge

Your store associates are on the front lines, and they acutely feel the impact of out-of-stock items. Imagine repeatedly telling customers that the item they want is unavailable. How would you feel? Disheartened and frustrated, right? Your associates take pride in providing excellent service and frequent out-of-stock situations hinder their ability to do so.

In that same Global Shopper Study, 81% of retail associates told us their company needs better inventory management tools to improve accuracy and availability. Even more (85%) agreed that real-time inventory visibility tools can significantly boost their efficiency and customer service. Why do they care so much about technology?

Well, when they can't meet customers' needs, it creates a cycle of frustration and inefficiency. They spend more time dealing with complaints and less time focusing on enhancing the shopping experience. This can lead to higher turnover rates as job dissatisfaction grows among staff who feel powerless to address recurring issues.

The Leadership Team's Responsibility

It's not just associates who are starting to appreciate the broader implications of out-of-stock items. Most (84%) retail decision-makers who participated in the Global Shopper Study said that maintaining real-time visibility of stock levels is a challenge. Many retail leaders I've spoken to personally tell me they're worried that a continuous wave of out-of-stocks will lead to dwindling customer loyalty, lost revenue, and a tarnished reputation.

Given that solving this issue is crucial for staying competitive and ensuring customer satisfaction - and for protecting long-term business health - let's talk about what can be done to improve inventory availability.

The Root of the Problem

I've heard many people claim the primary cause of out-of-stock items is a lack of inventory availability in the supply chain or perhaps a delivery issue. Maybe merchandisers aren't showing up when expected, trucks are delayed due to weather, or the routine delivery frequency or stock volume isn't right. And those could certainly be contributing factors.

However, the real reason why there are so many out-of-stock issues right now is because there's a lack of visibility into what retailers have on hand.

Sometimes, associates (and buyers) don't know what needs to be ordered from vendors until customers complain that shelves are empty or they get around to doing inventory. By this point, it's too late. There's nothing you can do to prevent out-of-stocks. They've already happened, and who knows how long that shelf spot has been sitting empty or how long it will be before more items can get there.

Therefore, you must have accurate data on what's available every second of every day if you want to prevent out-of-stocks. You can't replenish items promptly if you don't even know what you have within your four walls.

Do you have extra stock on hand that just needs to be moved to the shelf? If not, can you find what you need in the supply chain or at another store with excess inventory? If you realize that you're completely out-of-stock, that this isn't just a shelf stock issue, then how do you know the right quantity to order?

On the flipside, you don't want to overstock in anticipation of a surge or out of routine. So, how do you effectively replenish your stores if you have no idea what you have or what you need? And how do you time replenishment orders perfectly so that you always have stock on hand?

The answers to these questions may elude you today since effective inventory management requires precise, real-time data that allows you to track stock levels, predict future demand, and make informed decisions about replenishment.

The good news is that the key to having the right products in the right place at the right time is as simple as having the right technology tools in the right places to collect and analyze inventory-related data and then tell you when and how to take action to maintain those perfect stock levels.

What's the Best Way to Monitor and Manage Store Inventory?

I could try to sell you on specific devices or software applications that I feel will give you the visibility and actionable data you need to prevent stockouts and overstocks. However, I'd rather point you to two real-world stories that will probably answer many of your questions:

· The Works team improved its out-of-stock rates by empowering store associates to perform their own stock counts with easy-to-use handheld devices that were loaded with software designed to automatically update systems. This led to more accurate inventory data and better replenishment, significantly boosting customer satisfaction. By taking control of their inventory processes, The Works' store staff was able to respond more quickly to stock shortages and ensure that their shelves remained well-stocked.

· The Vera Bradley team took a slightly different approach and streamlined its audit processes to gain better visibility into current inventory. This allowed all store staff to maintain better in-stock positions and improve their in-store displays, resulting in increased sales. By enhancing their inventory visibility, Vera Bradley associates could make more informed decisions about product placement and stock levels, leading to a more efficient and profitable operation.

Both retailers quickly learned that, with the right tools and processes, it's possible to reduce out-of-stock issues and improve both customer satisfaction and sales. Their successes are not isolated incidents but examples of what can be achieved with a commitment to better inventory management practices.

There have been discussions by others before about the benefits of in-house inventory counts and also the need to capture and collate accurate data to support predictive analytics and become more proactive with inventory replenishment. You can read them here:

• Why Retailers Should Adopt the Millennial Mindset, Especially When it Comes to Managing Employees - and Inventory Counts
• 5 Reasons Why It's Better to Handle Your In-Store Inventory Counts "In House"
• Not Sure How to Get Started with a Self-Directed Physical Inventory Program in Your Retail Store? (Or Even if You Should?)
• If You're Losing Time, Money and Patience During Physical Inventory Counts, You Might Want to Rethink Your "Service"

However, if you're still not sure if it's worth making a change in how you manage inventory right now, let me remind you that the numbers don't lie.

Statistics repeatedly support the need for better inventory management. Out-of-stock items are the number one reason customers leave a store without buying what they came for. It's also the third biggest concern for shoppers overall. Furthermore, 41% of associates complain about out-of-stock items.

Perhaps that's why, in the next five years, 59% of retailers plan to implement demand forecasting to improve stock availability.

However, effective inventory management is not just derived from a technological upgrade. Nor is it something you should approach as a simple data digitization or workflow digitalization project. Putting the right technological mechanisms in place to have 24/7 inventory insight is a strategic necessity that directly influences your bottom line.

Reducing out-of-stock items isn't just about improving sales; it's about creating a better experience for everyone involved so that people like you and want to either work for you or buy from you. It's about giving customers the confidence that they'll find what they need so they don't question whether they should walk through your door or a competitor's. It's about empowering associates to provide the best service possible - to know when a shelf is about to be empty or your store is about to completely run out so they can do something to avoid a total stockout. And it's about helping your leadership team make informed decisions about inventory mix, procurement practices, staffing, and other things that influence - and benefit - the performance of the entire organization.

So, yes, to solve the out-of-stock crisis, you need to invest in better inventory management technology tools. And, yes, it's a change that requires commitment and resources. But it's something that will have a widespread impact - something that will enable you to finally deliver a frictionless, convenient shopping experience.

Just remember: You have no idea which inventory management technology tools "will be better" than the ones you have today - you won't know what changes you need to make in your processes and system - if you don't take a hard, honest look at the root cause of your inventory problems. If you go in with open eyes, you may find it's a supply availability issue or something you can hold merchandisers accountable for as suspected. But, then again, it may be that your team can't see (and therefore doesn't know) how much inventory has been sold through, what's on the shelf, and what's in the storeroom in real time. It may be that repeated out-of-stocks are a consequence of assumption or inaction by your team because they're just too busy to do the manual work required to verify inventory levels.

So, let's work together to get you a direct line of sight - a trusted view - into your inventory levels and locations and figure out what's really going on.

If you're not convinced that you have a visibility issue, if you think you're getting alerted to dwindling stock levels in a timely manner, then let's still have a look. Once we confirm what's contributing to out-of-stock or even overstock situations, then we can put a very prescriptive treatment plan in place so that you can stop the "preventable" losses due to predictable and avoidable out-of-stock or overstock situations. (You can reach me and the team here.)

Ahead of our conversation, you may also want to read about the lessons some other retailers have learned about the most effective ways to monitor and manage inventory. I particularly like this first PacSun story because it shows how risky it is to make assumptions about why something is happening in your operations and how easy it can be to fix issues once you figure out what's really going on:

• Researcher-Led Simulation with PacSun Reveals Why Inventory Planning, Store Operations, and E-commerce Fulfillment Problems Can't Be Solved in Silos
• If You Dread Having "Dead Inventory," Consider This
• The (New) Best Way to Optimize Inventory Performance in the New Normal
• Retailers: This is the Truth about True Demand

Kevin Tapscott is Vice President of Solution Consulting for the Americas at Reflexis, which is now part of Zebra Technologies. He leads a team of retail operations experts who help retailers simplify their operations and optimize their labor with intelligent task management and workforce management software solutions.

Kevin has helped shape the Reflexis ONE product and its direction, working with hundreds of retailers over 14 years with Reflexis. Previously, he spent 15 years in retail operations across North America as a strategist leading teams of customer care specialists and operational experts focused on growth.