Photo: RetailWire
Stores have cut out-of-stocks. Why don’t consumers know that?
Research shows that online retailers have significantly lower service levels when compared to traditional retailers that operate warehouses and stores. Still, the perception persists that Amazon.com can quickly and efficiently deliver any product to your doorstep, while brick-and-mortar retailers constantly run out of stock on items. Why the disconnect and, more importantly for traditional merchants, how do you overcome that perception?
The perception disconnect is rooted in the fact that customers have grown accustomed to high availability as retailers have improved their supply chains and technology over the last 20 years. For physical retailers, an out-of-stock is as clear as the hole on the shelf. It’s tangible, and shoppers experience a time delay in acquiring the out-of-stock item — whether by visiting a competitor’s store or placing an order online.
While ecommerce customers may be unimpressed by poor availability, they are far less inconvenienced because switching to a competing online retailer takes just a moment’s time and a few mouse clicks. The negative impact on long-term loyalty in the ecommerce scenario is lower because it’s easier to shop multiple online retailers than multiple traditional retailers.
The key to shifting the perception of in-stock challenges when comparing traditional to ecommerce retailers is to make sure that, first and foremost, customers in brick-and-mortar stores see great availability. When stores experience out-of-stocks, they must act quickly to offer a substitute, or at least make the shopper aware of the stock-out to prevent unnecessary frustration. Simply changing the shelf display to cover up the missing item could also leave the customer dissatisfied and reduce loyalty.
It is particularly important for traditional retailers deploying services like buy online and pick up in store (BOPIS) as part of their digital marketing plans to optimize their inventories. Retailers face considerable risks if they try and fail to deliver on the brand promises they make as part of the value proposition versus e-tailers.
Brick and mortar retailers must clearly communicate that they have what their shoppers want and then deliver on that promise each and every time. This is critical for every channel the retailers deploy to engage their customers.
Discussion Questions
DISCUSSION QUESTIONS: How can brick and mortar retailers correct poor perception problems about their out-of-stocks? Should physical retailers try to point out the availability challenges faced by digital-only competitors?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
John Karolefski
Editor-in-Chief, CPGmatters
The first issue with out of stock items is that too many retailers do a poor job of keeping the shelves full of the inventory they do have. How many times do we walk down the aisles of a store and see hole after hole on the shelves? Then when you ask an associate for an item, you get that frustrating answer, “If it’s not there, we must be out of it.” I don’t think it takes a rocket scientist to figure that out, but it doesn’t make the customer feel any better.
The second problem is that too many retailers, despite all the technological advances do a poor job of managing their stock. Have you’ve ever heard that great phrase, “ According to the computer we’re supposed to have the item, but I checked the stock room and it’s not there.”?
So retailers, use your stores as the advantage for customers who want to shop but do everything you can to make them happy, and that begins with making sure you have the items in stock and when you don’t, use the opportunity to make ordering directly from the store quickly and easily. Customers more often than not will understand when an item isn’t available, but you can soon remedy that by getting it to them quickly without any more inconvenience. When you do, you won’t lose the business.
In my experience, in-store stock-outs are much more than a perception problem. They are a real problem. I am constantly shocked by how many stores – even those of the biggest brands in retail – struggle to keep their stores adequately stocked. Empty shelves and empty BOPIS promises become stark reminders to shoppers as to why they prefer to shop online and save the time and hassle of visiting a store. We have to stop trying to “optimize” inventory if we can’t keep the shelves and pegs and racks full. Otherwise, all the progress we’ve made creating differentiating store experiences has been wasted.
As Andrew’s article points out, perceptions of out-of-stocks are driven by visual evidence. If a peg or shelf is empty, the item is out of stock as far as the customer is concerned. That’s why the “last mile” of getting goods onto fixtures is so important in terms of payroll planning — if a store’s inventory system says an item is in stock, it doesn’t count if it’s on a trailer awaiting unloading or sitting in a stockroom. It’s a cliche of brick-and-mortar retail — but just as true as ever — that the customer isn’t shopping in the stockroom.
The perception of stockouts is further complicated by omnichannel initiatives like “ship from store.” Retailers are using their physical locations as mini-warehouses, from which to ship e-commerce orders no matter where they originated. One result? The inventory planned to satisfy demand for customers actually walking into that location isn’t always there.
This is one on of those topics that is misguided by bad research. If you are on Amazon, as an example, there are lots of people selling the same item – easy to find what you want. So Amazon per se is not out of stock, just one of the many vendors on Amazon. That’s a totally different phenomenon from my Kroger having an out-of-stock on an item. Then I need to switch items or go to another Kroger store to get it. Brick-and-mortar is stuck with this problem and the best they can do is keep service levels high enough that shoppers don’t walk out or aren’t dissatisfied enough to stop coming.
Stores have cut out-of-stocks? Who knew? Certainly not shoppers. The photo with this story gives the lie to the question. The real problem is far deeper. The item count in shoppers baskets at supermarkets is DOMINATED by the single item purchase, then two, then three – it’s logarithmic. (In Walmart supercenters it is three, then two, then one!) Here’s the reality for the supermarket:
Sell them what they are buying!
A major, international super-marketer protested, “But the stock-up shopper is our target demographic!” Good luck with THAT. The superficiality of understanding the shopper is quite astounding when compared to the reality of the data.
Amazon (online) expedites single item purchases, with their “1 ClickTM” strategy, backed by an “infinite” selection — “The Everything Store.” Their Amazon Go illustrates how this CAN be done in a bricks store. Their own bricks store, Whole Foods, has a L – O – N – G way to go before becoming anything approaching Whole Foods GO. Will another retailer get there first? Not if they stay stuck in “paste on” online sales mode.
But then, Amazon doesn’t have a lot of serious competition online, so “GO” may yet conquer both worlds of retailing, clicks AND bricks. But, of course, it really is only one world, to shoppers — where we get our stuff! See: “Selling Like Amazon… in Bricks & Mortar Stores!”
It would be helpful to have some actual numbers to discuss. It’s fine to assert that, for example, “Research shows that online retailers have significantly lower service levels when compared to traditional retailers that operate warehouses and stores.” But what is the actual delta? Beyond that I think perception is the key, in the same way it is in pricing. And that’s the flaw in the argument. If a store is 99.5 percent in-stock, but what I’m looking for as a consumer falls into that 0.5 percent out-of-stock, my perception will be that the store has an out-of-stock problem. There’s also the frustration associated with the immediacy of physically reaching for something that is not there, again deepening the perception of poor service levels. As to the second question it is NEVER a strong argument to say, “Shop with me. I’m not as bad as he is.” Being better than a poor competitor is not the same thing as being good.
There’s another perception issue: Online stores can give the perception of an “infinite aisle.” Retail stores struggle more here. When I’m searching for a specific item, any given store may or may not carry it.
“Out of stock” in the customer mind isn’t narrowly tied to what should be in stock — but to what they need at that point in time.
Online may have to backorder the item — but the customer is interested in finding the product their way, ordering it, and having it arrive. They can do that easier online — unless they need it instantly.
Cheers to brick-and-mortar retailers that have made leaps and bounds in combating out-of-stocks. That said, the ability to curb out-of-stocks doesn’t necessarily translate into improved product availability for in-store shoppers. No matter how motivated store personnel are, execution problems like product not being visible to shoppers (i.e. below eye line, behind other products, in the wrong place), product left in the stockroom, or system problems like ticketing issues, inventory discrepancies, and more persist. As a result, shoppers perceive out-of-stocks as being more pervasive in brick-and-mortar than online.
Perceived out-of-stocks remain a persistent problem in the industry. Members of the Store Operations Council blame several factors, but over-busy store associates are a key factor. Until we can get more talent in the store we’ll have this problem.
The out-of-stock rate in supermarkets 20 years ago was 8 percent. Today, it’s still 8 percent, according to the latest research I’ve read. Maybe robots are the answer to full assortments.
The other part of this perception, is that physical retailers (Now, I’m talking specifically grocers) have actually not improved OOS conditions versus their own performance of a decade ago. So, while the physical stores have room for improvement, online pure-players have the inherent advantage of ultimate convenience, and the relative perspective of OOS is not enough to sway shoppers’ perceptions.
Brick and mortar retailers must show their customers that they can resolve an out-of-stock problem quickly to hold onto the customers. Online, the customer can move quickly to another retailer, but this is not the case in the store. The customer has spent the time to come to the store and an alternative to that retailer is probably not next door. Whether it is free shipping to the customer’s house or creating a delivery from another store, the value of the relationship with the customer is more important than the cost to service them during a OOS situation.
Physical retailers should not highlight the challenges faced by digital-only competitors. The customers will not care; they only care about the service they get from each retailer. They will do the valuation of each retailer themselves.
WRT the headline, all I can think of is Herzberg’s Motivation Theories and how elements contributing to dissatisfaction dissatisfy when they aren’t provided, and aren’t noticed when they are. Retailers shouldn’t be expecting accolades for reducing out of stocks, that should be a basic metric of capability. In Herzberg’s theory (albeit focused on work), satisfaction and dissatisfaction aren’t a continuum, they are separate elements.
PS, reading a book years ago about Panasonic, one of the founder’s sayings was “to be out of stock is a sign of carelessness.”