Are out-of-stocks driving shoppers online?
Frustrations over out-of-stocks were again sparked by a fairly innocuous article last week in The Wall Street Journal that explored a push by many retailers to reduce inventories. One theme running through the numerous comments on the article was that out-of-stocks are causing shoppers to buy on Amazon.
Among the readers’ reactions:
- “I try to shop at local retail stores but, too often, they don’t have the items in stock. I’m referring to basics like razor blades and shampoo. Now, I just order from Amazon. It’s faster, easier and usually without a shipping charge.”
- “When I have gone into the stores recently, a lot of what I’m looking for (especially sale items) are sold out or unavailable. So I wasted time and gas to come up empty.”
Recently, retailers have been emphasizing smaller, more frequent deliveries to improve inventory management, according to the Journal article. Mark Wilkinson, a U.K. food industry supply chain consultant last October told FoodManufacture.co.uk, “Some retailers have moved from a single delivery every 24 hours to as many as three.”
Other strategies, according to the Journal, include lowering backroom stocks and reducing the level of items on upper shelves to lessen the need for ladders and forklifts.
The Journal indicated that the greater urgency to lower the cost of inventories has been prompted by the need to at the same time expand inventory to cover both online and offline selling as well as deal with the complexities in shipping from stores and the overall erosion in retail profitability.
Walmart in recent years faced numerous media reports of “out-of-stock” situations that were attributed to employee cuts that hampered restocking efforts.
In a twist, Toys “R” Us last holiday moved to fill shelves with more products. Toys “R” Us CEO David Brandon told the Journal last December, “If a customer can’t find what they’re looking for at your store, 60 percent of the time they will shop somewhere else and never come back.”
- Retailers Rethink Inventory Strategies – The Wall Street Journal (sub. required)
- Logistics in a new retail landscape – FoodManufacture.co.uk
- Walmart shifts inventory to warehouses – RetailWire
- Customers Flee Wal-Mart Empty Shelves for Target, Costco – Bloomberg
- Struggling Toys ‘R’ Us Tries Fuller Stores – The Wall Street Journal (sub. required)
Discussion Questions
DISUCSSION QUESTIONS: Are store out-of-stocks a major reason many consumers are increasingly turning to online shopping? How can retailers reduce inventory costs without increasing out-of-stocks?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
I’ll use myself as an illustration of why the answer is yes: Over the long weekend I had three separate transactions with Amazon (for K-Cups, indoor spotlights and a new laptop battery) that saved me three different shopping trips. I had the assurance that the items were in stock, would show up quickly and would be priced competitively. It’s not just the price and the convenience of the transaction, but also the assurance that the items are in stock.
This is a powerful rebuttal to the brick-and-mortar model, especially as more stores try to keep up with Amazon by offering too much selection in a limited amount of space. Retailers have forgotten the maxim of “narrow and deep,” and find it more and more difficult to stay in-stock on such a broad array of SKUs. (In fact, Target has had this problem for years.) This is one more way in which “omnichannel” has turned into a double-edged sword for many retailers — and not the growth driver it was imagined to be.
One could say the same thing about not finding someone to help answer questions, finding a lower price or additional options. This is nothing new except that when Amazon is out-of-stock, they show third-party vendors who can fulfill. Dick is right on — trying to be everything to everyone leaves little room for being a reliable source for many things.
Out-of-stocks hurt retailers. Period. If you don’t have what I want, when I want it, I’ll go to a competitor or simply buy it online. This is not a new situation. It has plagued Target for years (and still does). Nothing is more frustrating for a consumer than to see an item on sale, drive to the store and find it out of stock. Rain checks just don’t cut it. If you want to be in the retail business, you need to have inventory in-stock and on the shelves. Whatever happened to “Stock ’em high and watch ’em fly”?
Count me as an illustration of this as well. I have three cats … they like three kinds of cat food and, because I have three, I buy it by the case. I literally begged the pet superstore near me (nameless for now) to please keep them in stock for me, told them the frequency of purchase and the exact flavors. They never were in stock for all three, ever.
Finally I gave up and started ordering from Amazon. I have some issues with the way they package the cases (too many come through dented) but overall it comes in two days, no muss, no fuss.
Unlike other purchases I make, Amazon was not my first choice at all for this. But ultimately the retailer left me no choice.
I did want to point out one thing. I’m not clear that these out-of-stocks are about inventory reduction initiatives per se as they are about turn increase initiatives. These are very different challenges. Ratcheting up turn can drive a retailer to have too much of the wrong stuff and not enough of the right stuff. That means the forecasting system is either ignored or inadequate. Or the retailer is moving too fast.
There’s nothing wrong with more frequent deliveries. It’s the missing deliveries that are the problem.
All good points above. I sense I am among the many who make a large percentage of my planned purchases online, including using Amazon Prime and signing up for “subscription” purchases of items I buy regularly. Less hassle/time (biggest issue), more variety, in-stock, cheaper. That’s a strong mix of hot buttons for all consumers. Besides perishable groceries, most of my “off-line” purchases are impulse buys in hardware stores. As arguably the ranking Luddite on RetailWire, I had definitely not seen this coming five years ago.
The one thing that was not mentioned here is … inventory accuracy! If retailers would address this issue first, it would go a long way towards making the right decisions regarding the management of inventory.
And that’s my 2 cents.
In their book “Retail Revolution: Will Your Brick & Mortar Store Survive?” Professor Rajiv Lal and his co-authors assert that physical retailers have essentially exhausted all their viable means to cost-cut. The article gives a very vivid example as to the truth in that assertion. When inventories and human resources fall below the red line then both the customers and the store lose out. Nobody wins.
One solution to the situation can be found in a simultaneous increase in both service levels (e.g., inventories) and in-store prices.
And why not? Customers who already drove to the store have by the very nature of their action demonstrated that they are willing to incur a higher cost (although not monetary) in order to purchase the product. If they do not get any benefits then of course they will quickly quit their trips.
Out-of-stocks simply give customers an opportunity to shop elsewhere, either another store or online. The most vulnerable part of the store is center-store. No need for customers to inspect these items. Instead they are easily acquired via Amazon Prime Pantry.
Brick-and-mortar retailers need to have a heuristic where none of the top 100 SKUs are ever out of stock. Another alternative, perhaps costly, is to have the product delivered from a nearby outlet of the same chain. I say perhaps costly, because what is the real lifetime loss of a customer who defects to Amazon?
Being out-of-stock is definitely driving more and more consumers to shop online whether it’s a store like Target or Macy’s. Out-of-stock items are a huge waste of consumers’ time and because it’s happening more often and is no longer an infrequent occurrence, it’s leaving customers frustrated and forcing them to search for better alternatives. If brick-and-mortar stores want to stay competitive, they need to keep better track of the inventory they are selling out of. If they don’t want a lot of inventory in their stores, they perhaps need to look into having more frequent deliveries.
I keep using this same word over and over to describe the competitive advantage online retailers (Amazon and others) have over brick-and-mortar stores. That word is convenience. “If the store is out of it, no problem. I’ll just get it online.”
If traditional brick-and-mortar stores are to compete one of the things they have to get right is the inventory issue. That doesn’t necessarily mean the store has to over-supply. I just found something I wanted to buy at a store. They were out of it, so they shipped to my home (at no charge) from another store. Problem solved!
Or if you’re an independent store with one location, offer to buy the product from an online retailer and have it shipped directly to the customer. That shows the customer you’re more interested in them getting the merchandise than making a profit on the sale. In other words, you’re more interested in taking care of the customer.
Make no mistake — out-of-stocks are the chief culprit for store closings. Stores will never be 100 percent in-stock, and customers are getting seriously spoiled by easy online access to just about anything at any time. Stores will need to create compelling experiences and make it simple for customers to order online while they’re in the store.
With so many considered purchases researched online before even heading out to a store, and the problem of out-of-stocks also rampant at online stores, at least we are seeing more retailers reacting with better customer experiences. To date, many customer service departments fielding calls from in-store and online shoppers about out-of-stock products have only been able to say: “We can’t answer your question. Why don’t you call more stores or keep checking the website?” But the improved UX this holiday will be focused on notifying consumers when products are back in-stock.
Last Fall, with the e-Tailing Group, we surveyed 1,209 consumers about their reactions to encountering out-of-stock products when researching purchases.
The results:
If brick and mortar retailers would look at their on hands as part of a “fulfillment chain” and were able to use all the inventory in that chain to satisfy customer orders AND be reasonably accurate as to the inventory levels and locations, they could offer shoppers more choice of how to get stuff faster and better than Amazon. In stock in-store? Pick it up or we’ll have it to your house next day. Visit in-store and out-of-stock of some of your shopping list items? No problem, we’ll deliver it tomorrow. This requires better deployment of stock both in-store, and to regional/city depots. It’s not the way most retailers are currently set up, but it is possible to compete with the online retailers by offering more choices and the certainty that one way or the other, your product will be at your house tomorrow.
This is one of those questions where the answer is so obvious. Of course out-of-stocks drive buyers to online purchasing. Why not? It is easier, keeps us in our Lazy Boy chairs and lets us continue doing what we need to do while “someone” “somewhere” is getting what we ordered shipped to arrive tomorrow. DUH! A no brainer here.
A reason? Yes. A MAJOR reason? No (except for items that are always out-of-stock … i.e. just plain hard to find).
As for the seeming contradiction of lower costs with out any drawbacks, it depends a lot on why items are o-o-s in the first place. If it’s a Walmart type situation where stock is in the back room crying out “shelve me!” then it’s not going to happen … there’s a minimum staffing you just have to have. Beyond that, it’s a just-in-time delivery issue: shift the burden to your suppliers (for those with buying power) or improve inventory management (for the rest).
Where is your inventory now? If retailers could answer that question, they could accommodate shoppers by telling them how quickly it could be available in store or offer to deliver to their home for free. The retailer would make the sale, the customer would be happy, and the retailer would soon learn enough about their inventory and customers to cut way down on having to offer to deliver items for free. The central issue is retailers not knowing what their customers want, not being able to replenish quickly, and not accommodating their customers.
In the out-of-stock problem, retailers are facing the fruits of their own labor. For years, retailers have attempted to improve profitability by reducing inventory and decreasing staffing. What happens as a consequence of those two strategies is that consumers are faced more and more often with empty space in place of the product they would like to purchase. As a result they go online.
No one should be surprised about this. The value of lost revenue from out of stocks can be dramatic; one of our clients discovered a multimillion dollar opportunity from poor stocking of just one product at one major retailer.
In order to successfully combat the surge of online products, retailers will be forced to increase their investment in both hard and soft assets. There is no other way around it.
Solution? I loved Shep Hyken’s suggestion of ordering the product for the customer and either delivering it or having it available the next day. That’s true customer service and the secret to keeping the customer.
It’s one of many reasons, but yes. As for how retailers can reduce inventory costs without increasing out of stocks, a combination of better forecasting, better visibility online to the customer on what’s in stock in a store, and a plan B (order the item for the customer/have it shipped from a warehouse of different store).