Out of Stocks: Costs are Greater Than a Lost Sale!

Even in today’s retail sales environment, some corporate leaders are stuck in a management pattern that could cost them their business. For example, the leadership team at Toys R Us, couldn’t imagine their loyal shoppers would ever abandon them and so declined to form a partnership and sell through Amazon. They held firmly to their view of history.

The result? Bankruptcy for Toys R Us.

What is the destructive pattern here?

The pattern is that too many retail leaders still assume that a shopper who comes in to buy a specific brand, only to find it out of stock, will always return to buy another time or will buy an alternative brand while in the store. Or they assume the convenience or “win” for the customer is secondary to the historical footprint of the retailer. That assumption is costing more retailers and manufacturers not just a lost sale, but in many cases the slow but certain collapse of their business as Toys R Us demonstrated.

Many product manufacturers are now seeing a decline in overall market share that numerous corporate leaders on the manufacturing side assumed would never happen 10-15 years ago. In the days when a consumer had only one or two choices of where to find a preferred product, the risk of losing the sale due to out of stocks as well as long-term brand loyalty was substantially lower. During that era, the folks called Baby Boomers were honored to be called brand loyal while that image began to fade rapidly with the Generation X and hardly exists with the Millennials in today’s marketplace.

If there is little to no real brand loyalty, are you as a retailer or manufacturer willing to bet the shopper will wait until their preferred brand is back on the shelf to buy? Are you willing to surrender the lost margin when that shopper selects a substitute brand as a cost of doing business at retail and assume they will buy your preferred premium brand on the next purchase?

One of the highest risks for both retailer and manufacturer is when the shopper leaves the store to buy elsewhere or pulls out their phone and buys through an eCommerce site that neither the retailer or the manufacturer offers.

The first step toward a productive solution is for managers of both retail stores and manufacturers to recognize their market blindness caused by interpreting the current market based on outdated customer behavior patterns. Assuming today’s buyers will behave as they have in the past is a decision framework that could cost you everything.

The second step is to harness the right technology solution that enables a more real-time view of market conditions down to store level. The right solution is not just another reporting tool or dashboard that can dress up performance outcomes into nice weekly, monthly or quarterly reports.
The solution must be built on a foundation of discovery. Discovery means the regional manager, store level manager, and or the local distributor can go beyond just seeing sales results and dive into the root causes of those outcomes.

The manager must be able to see in seconds what brands or packages drove the sales results for any prescribed period but he or she must also be able to isolate which stores didn’t see comparable results and know exactly why it happened. To implement these changes requires all parties within the supply chain to see beyond traditional corporate boundaries.

By all supply chain partners jointly sharing data and monitoring sales results, category shelf sets, service commitments and trade spending activities, all parties can enjoy better results by isolating the root causes of problems and duplicating proven strategies that drive positive results.
Rapidly drilling down to the root causes of in-store problems can reduce the out of stock sales that are almost never recovered in today’s market.
This discovery process can show, with precision, where an over-stocked problem exists with the wrong SKUs causing losses and out of stocks of the top selling brands.

Seeing market activities in almost real time with the ability to make new decisions and monitor results of those decisions will also lead to more effective and accurate sales forecasting.

Added benefits also include a better understanding of competitive brand dynamics in every store category, a clear view of what brands and SKUs are hot and driving changes in brand loyalties, and which stores need attention immediately to preserve sales growth and profitability.

Done right, these critical decisions can and should be made with one core technology solution that can harness all the data silos needed. In addition, the technology solution should deliver all levels of management the information required in formats that are clear and understood by all parties within seconds not days.

Are you ready to move from a reporting to a discovery mindset and change the outcome of your out of stock problems?

Karl Edmunds

About the Author

Vice President, Salient Management Company

is a nationally recognized business leader and author with more than 20 years of experience working with suppliers, distributors, and retailers in the CPG industry. His focus is aligning technical solutions with sales, marketing, and organizational needs to drive long-term profitable growth.

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