The Critical Issue of Out-Of-Stocks
One of the top complaints retailers hear from customers is the lack of product, or “out of stocks.” Few things are more aggravating for a shopper than arriving at a store and finding that the desired product is unavailable. In response to sagging sales as a result of empty shelves, mega-retailer Target is aiming to take control of the supply-chain problems and shore up its customer satisfaction as well as sales.
Online retailers and brick-and-mortar shops alike depend on good inventory management to run an efficient business.
A study from IHL Group last year reported that overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue. Inventory management systems can help, because they inform managers what products are hot sellers. However, some products are must-haves for retailers to carry: For grocers, it might be ketchup, for an office supply store it could be reams of paper. Those are staples that have to be there no matter what. Barren shelves are an issue that, for instance, Wal-mart is criticized for frequently, and that Target has been under fire for recently as well.
But while Walmart’s woes seem to be related to being short-staffed and, therefore, unable to move inventory from the stockroom to the sales floor, Target’s stem from inventory management. There simply isn’t product in the stockroom to display. Last summer, during a conference call with investors, CEO Brian Cornell blamed the inventory problem on an antiquated supply chain strategy that didn’t account for a multi-channel approach to selling. The ability to buy online and pickup in store (BOPIS) had successfully depleted brick and mortar supplies. As a result, Cornell has since launched a strategy designed to take control of the supply chain — which previously had largely been outsourced — to get products onto shelves and into customer’s baskets.
The importance of customer satisfaction in this realm was not lost on the newly minted Chief Operating Officer John Mulligan, who was promoted from the role of Chief Financial Officer. ”Given the breadth and complexity of the business, it will always be a challenge to be in stock on every item in every store… but our guests need us to be consistent in delivering everyday essentials,” Mulligan told Business Advisor.
What Target is learning is that while those products need to be available, not every permutation of the product has to be stocked. For example, how many types of bottled water are needed to satisfy customers? How many bottles does each “case” have to have? Will a shopper walk out if the 16.9 oz. bottles are only available in a 24 pack?
Target is betting that narrowing those types of selections will be acceptable to customers and easier for the stores to manage. It seems to be working: Fortune reported that out-of-stocks were down a whopping 40% during the holiday shopping period. In addition, e-commerce sales rose 34% during the holiday shopping season, according to investorplace.com. Some of the resulting profit will likely fund Target’s expanding use of RFID for inventory, which will enable the retailer to wirelessly track products in stores, warehouses and en route to customers.
All of which shows just how interconnected multichannel commerce truly is: Keeping the shelves stocked on Main Street will keep shopping carts filled on the ground, as well as online.
