Photo: Walmart
How good is ‘close enough’ when it comes to in-store inventory?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
Way back in 2005, Circuit City announced a radical-for-the-time program that guaranteed an order placed online for in-store pickup would be ready in 24 minutes or the customer would receive a $24 gift card.
Needing a portable DVD player with a long road trip coming up, I tried it right away.
What ensued was a comedy of errors. I arrived at the store, waited and eventually showed my time-stamped e-mail confirmation. I will never forget the look on the kid’s face. He knew right away I was getting a gift card. What happened? Circuit City only offered inventory as “available” when four or more were in stock. In this case, two of my DVD players were missing, one was damaged and the fourth was on display. (It was locked down and the associate didn’t have the key.)
I asked if another store had the DVD. It turned out I had literally driven past the store that had nine available! After having to “return” the item in one store, — a painful, lengthy process — I had to purchase it again at the new store.
Fast forward to today. In RSR’s most recent look into retailers’ supply chain execution strategies, we found a lot to be wanting. Retailers are, for the most part, only guessing how much inventory they have in stores at any given point in time. They want to promise as much as possible to consumers, especially if it is online demand for products that stores might need to mark down soon. Store visibility is as weak as ever. Omnichannel promises to customers seem to be wreaking havoc on retailers’ supply chains, sending inventory from stores all over the place with not enough regard for costs or for ensuring that inventory is sent to the right place for future demand.
The good news is that retailers’ strategies are aimed in the right direction — a focus on customers and meeting their expectations in any way possible. Hopefully, they will figure out quickly how to do that in a way that is sustainable long term.
Discussion Questions
DISCUSSION QUESTIONS: Are retailers making too many promises given their abilities to account for and manage inventories? Will they catch up soon?
Poll
BrainTrust
Adrian Weidmann
Managing Director, StoreStream Metrics, LLC
Lee Kent
Principal, Your Retail Authority, LLC
No question omnichannel shopping is exacerbating this already problematic inventory management issue for retailers. The optimist in me says that this will be a case of “things had to get worse before getting better.” In the grocery industry that I play in, inaccurate inventory management leads to especially painful customer experiences. When a customer orders all the ingredients to make fish tacos for dinner and receives everything but the taco shells, this is a pretty big bummer. Fortunately, the more sophisticated grocery e-commerce platforms offer substitutions to customers to soften a poor customer experience, but when those customers reject substitution recommendations, it just means lost revenue for the retailer. If poor customer experiences and lost revenue are not enough to drive retailers to improve, it is unclear what is.
Retailers can spend millions on marketing and omnichannel only to have it all blow up when a customer arrives for click and collect, and then has to wait longer in line than at the cashier, or worse yet, leave without the exact item! Nikki Baird’s Circuit City story is still happening far too often today!
Buy online and collect in store is projected to grow exponentially — as much as 300 percent in the next five years for many retailers. It is a great opportunity to capture sales and generate store traffic. Yet, it is this hybrid omnichannel strategy that places the greatest stress on accurate inventory to execute a seamless experience.
Perpetual quarterly inventory was sufficient for store management. It is woefully inadequate for today’s real-time omnichannel demands. If there was ever a time for RFID inventory management of SKUs on the shelf … it is now!
With competition being only a click away it’s more important than ever for retailers to accurately manage inventories, and that task is become more complicated in an omnichannel, BOPIS world. To catch up, retailers will need to invest in new, potentially costly systems, something many with small margins are hesitant to do.
Too many retailers are trying to get into the omnichannel retail game, but still have not upgraded with retail technology to have an effective approach. For example, a robust order management system will provide retailers with a real-time view of inventory down to a store location, or even a shelf. It consolidates the inventory system (overnight) looks at what’s in the DC, online orders, order commits, and in-store transactions from the POS. If you are relying on a simpler system that came with your POS or ERP … you might be shortchanging yourself.
To answer the question, retailers with ineffective retail technology are definitely promising too much — especially if they don’t have a real-time view to their inventory. In today’s retail world, this is table stakes.
Post year-end cycle count, which gets retailers to an effective 100 percent accuracy, many retailers’ inventory accuracy quickly regresses to an average of 65 percent. This creates a large gap between what they think they have and what they actually do have, leading to an inevitable crash in expectations between retailers and shoppers. Retailers get this, and are working to increase inventory visibility by leveraging technology that integrates RFID, video, mobile locationing sensors and algorithms, to get to inventory accuracy that is near 100 percent.
Also, many are realizing that the great SKU expansion that has occurred over the last five years has also increased their exposure and complexity, and are now looking to simplify the total number of SKUs available.
Under-promise and over-deliver has always been a good rule to follow at retail. Current practices are often just the opposite.
Before a retailer promises that it has an item in store it should first have made the necessary investment in systems to ensure that its book inventory equals the real inventory. Even with sophisticated systems it is impossible to update store-level inventory in real-time. If the last item the person online is looking at has been selected by a customer in the store but not yet rung up, then inventory shows that it is in-stock (technically it is) but in the real world it’s on its way to be checked out.
Smart retailers would build a margin of safety into their inventory system. However, the economics of carry inventory are forcing retailer to keep the physical stock to near record lows. Perhaps the best that they can do is offer a guarantee that if it not immediately available at that location they will source it and ship it to the customer free.
If ever there was a place when the bean counters and customer experience interests overlap, it is inventory awareness. Drucker’s maxim “If you can’t measure it, you can’t manage it” applies directly. And retailers can also subscribe to Deming’s comment that “there are many things that cannot be measured but still must be managed.” Measurement often drafts behind technology-enabled approaches, which accounts for lag in their uptake, so somewhere between the measurable/managed and innovation lies the science of retail. Experimentation that sheds light on what we know we know and what we know we don’t know moves analytics-driven business forward — the current march of physical retail.
As exemplified by Jon Polin, the answer varies from category to category. Inventory accuracy for any retailer is important, and for omnichannel retailers it is extremely important. In those categories that can embrace it, RFID technology makes this a no-brainer. There are many ways to improve inventory accuracy in stores; process, technology, culture. Some retailers have been loath to implement all of them. Some have been distracted with gaining a digital presence and have forgone the basics. There is hope because there is at least one way to get there! While it is not easy to decide priorities, some business initiatives require simultaneous, parallel efforts in order to successfully achieve high inventory accuracy.
I’d also point out that successful branding will win retailers some latitude in a margin of acceptable error. Brand equity is a corporate asset. It allows a brand to reduce communications investment and charge higher prices while enjoying consumer loyalty and enduring fewer customer complaints, which generally can be resolved more efficiently as consumers give more latitude to the brand when mistakes occur. The empowered consumer, digital experiences, omnichannel with new models of commerce and demographic groups with varied values and attitudes increase the challenges of successful, cost-effective branding, but the rewards of branding apply directly to the bottom line.
The fact of the matter is that retailers (and brands!) need to have a 100 percent accurate visibility on their inventory in order to provide a seamless shopping environment where there are no recognized channels! This is what shoppers expect — Period! Whether retailers make the promise or not they better figure it out — and quick. Seamless inventory management and merchandising technologies and their associated business models are my latest focus and passion. Addressing this issue is at the heart of making everything else possible to meet the expectations of the digitally empowered shopper.
I agree with Adrian. This is really a foundational piece that the rest of a retail organization needs to be built on. Many brick-and-mortar retailers have started out behind with big aspirations, falling short on execution. There’s a combination of technology and discipline required to keep up with the demands of omnichannel consumers today.
One of the culprits here is not only the obvious lack of true supply chain visibility, but also the fact that not all data is even seen by retailers’ systems today. We are hearing that 80 percent of all data is “dark data,” and this is one example of how retailers and CPG brands could get even closer to inventory level reality with the capability of “seeing” all the data in the first place. Technologies are available now in the marketplace to accomplish this.
It’s so classic when it comes to retailers literally guessing whether or not they can satisfy customers. If they guess right, then terrific. Guess wrong and it’s more than a fail when there are so many alternatives (e.g., Amazon) that offer a much greater degree of certainty.
I recently had a similar experience to Nikki’s with Best Buy. After ordering online and giving the store 45 minutes to pull the items, they were not available. It was a quiet day in the store and there were plenty of associates milling around, not looking particularly busy. Given that I was pressed for time and frustrated, I simply asked them to cancel the order and bought from Amazon. The goods came from Amazon as expected and it took Best Buy 10 days to fulfill its promise to cancel my order. Total fail.
BOPIS is a great concept but when you arrive at the store and it’s significantly faster and easier to order from Amazon (in hindsight) or walk to the goods on the floor for purchase, the brand trust the retailer might have had quickly erodes.
Inaccurate inventory visibility is one of the issues that retailers need to address soon. There are studies showing that out-of-stocks (or perceived out-of-stocks) can be measured at 6 to 7 percent of sales, which is a huge number in a $4 trillion industry. Customers aren’t as forgiving as they were before unified commerce. This should be at the top of the list for everyone.
Short answer: I heartily agree that retailers are making too many omnichannel promises given their abilities to account for and manage inventories.
It’s 2017, their inventory shouldn’t be a guessing game. They should have software telling them exactly what they have in the store just by pressing a button. How are retailers not ready? They had plenty of time to prepare. Now it’s just about to late. They have turned us off from going out to shop completely because they never ever have what we want in stock. Why would I want to keep getting disappointed? I don’t. I’m sorry Mr. Petersen, “Buy online and collect in store” is never happening…I wouldn’t bet on that stock.
My birthday is on February 28 and I just texted my dad my list — two links from eBay one link from Apple and Sixers tickets. Outside recess today.
We’ve been saying it for years. Inventory visibility is key! If retailers still don’t have their inventory under control, omnichannel is going to kill them.
Retailers, do you know where your inventory is right now?
For my 2 cents.
On a local level, store and department managers in physical stores must use their inventory management software and processes to their advantage. The software and ordering systems should allow for planning and merchandise trending that is essential for a positive customer experience, even more so in specialty stores. As retailers face ongoing competition from the online sector, “showrooming” products and making sure the product is available are imperative. To frustrate or mislead shoppers will result in more closings of physical stores.
(Overly) broad question: certainly SOME are, but then there are always “some” retailers doing something wrong. I would think most retailers have reasonable policies, but certainly there is a danger of blindly matching — or trying to match — someone else’s policy(ies) in the name of competition. So another lesson in being good at what you do rather than trying to be something you aren’t (not that simply saying “we don’t do omnichannel” is wise).
I believe the consumer has a different expectation on inventory control and management than industry folks. A gift card in lieu of the failure to deliver on the retailer promise is not ideal, but it mitigates potential frustration and disappointment.
Consumers will understand that human elements (like proper input of damage and display models) will wreak havoc on inventory systems. Perhaps adding a human element to address mistakes, such as having a retail associate place a call to the customer as soon as they learn of the inventory problems, will not only satisfy the customer, but also provide the retailer the ability to upsell or provide an alternative product.
I continue to be amazed at how my beloved retail industry continues to downplay the essential requirement for store-level, real-time, perpetual inventory. Not some approximation in the cloud. I mean sensing and tracking within each and every building, by continuously triangulating data from receiving, POS, and shelf spot-checks for every item, every minute of every day.
Accurate store-level reordering is near impossible without this information. Without it, inventory inaccuracy reigns and customers are frequently disappointed. Without it, click-and-collect is frequently a crapshoot for retailers offering unified commerce.
Once a truly reliable store-level PI is established, the data (maintained within each store’s local server) rolls up nicely to the distribution-center and enterprise levels and numerous benefits accrue. Among them: maximum on-shelf availability without excess safety stocks; correct promotional quantities; reduced shrink; more timely re-orders; fewer delivery truck miles; store labor efficiency.
For retailers that offer online ordering with rapid in-store pickup, store-level PI offers an additional huge win: high confidence about the availability of every item ordered on-line. Make no mistake: you’ll never make good on your service promises to your customers without it.
Just last month I bought an item from Best Buy for in-store pickup, expecting to pick it up later the same day. Instead I’m greeted with a message saying it would take a week before my order would be ready. The technology to accurately track inventory has existed for years through multiple methods such as RFID. As for actually implementing this technology, retailers have been reluctant to invest in it, despite the various benefits.
Retailers recognize the need for a holistic customer experience that transcends channels, such as BOPIS/click and collect, but most attempts are falling short. Many retailers have taken the “just get something done” approach over the last few years to attempt to deliver the cross-channel experience customers expect. The unfortunate result of this quick fix approach is a “faux” omni-channel model that doesn’t execute as promised and risks disappointing customers.
Truly having enterprise-wide inventory visibility and access in real-time will improve the process but the technology is only one leg of the stool. The others are people and process and if you don’t do all three well, execution will suffer. Retailers need to refine their processes and train their associates to improve the efficiency of BOPIS. It needs to be a priority – beyond special parking spots and pick-up counters.
Retailers need to make real-time retail a top priority and move from faux omni-channel to unified commerce.
Close enough is fine if you leave a little buffer — i.e. always list the online stock as 85% of the in-store stock. No current inventory tracking is going to solve the problem of ordering online while an in store shopper picks up your item and carries it to the front.
Retailers who don’t leave a buffer are trading a tiny short-term sales boost for long-term customer retention — not sustainable.