Out-of stocks plague retailers–and shoppers. Too many out-of-stocks contribute to the brand erosion we discussed, as shoppers learn not to rely on a retailer, in spite of advertising price cuts to lure them in.
On a recent audit at one of UK retail giant Asda’s stores in the industrial town of Slough reported a 12 percent out-of-stock rate; 85 percent of those products were on promotion. So shoppers were unable to obtain the sale items they came for. Asda, a subsidiary of Walmart, is the third-largest retailer in the UK and known for its low pricing. What does the out-of-stock situation do for Asda’s highly touted value offer? What perception do shoppers leave the store with, having experienced this level of unavailability? Is Asda creating long-term value or diminishing its brand? And the manufacturer who paid for the privilege of discounting his product in Asda–for the gondola end, mailers, etc.–is certainly not gaining any points with shoppers who can’t get what they want, leaving them to either shop elsewhere or choose a competitive brand. For a moment, let us consider what else happens to a retailer’s business when discounts are applied. Retailers recognize that it takes more than price to keep shoppers happy. Shopper satisfaction is a difficult measure to pin down, but “keep the customer satisfied” is a mantra that has lasted for a long time. And what frustrates shoppers most? Long queues for sure, and out-of-stocks. And what causes out-of-stocks? Well, many things–bad forecasting, ineffective shelf planning, and, yes, you guessed it: discounts.
Promoting lines has two major impacts on in-stock management. First, it is significantly harder to predict demand for short-term promotions: sharp spikes in volume may be brought on by the discount, making out-of-stocks more likely. Dual location of stock also makes things harder, as store systems typically show a total stock position. The product may be in stock on the aisle-end, but out of stock on the shelf.
Promoting products may attract shoppers, but if the shoppers can’t actually buy the product when they get to the store, what happens to their view of the store in the long term? And, of course, given that sales of promotional lines are hard to predict, this also means that there are many cases of overstock, which drives cost into the retailer’s business–another hidden cost of promotion.
Poor forecasting, limited allocations, store overrides, the proliferation of multiple promotions pinching the retail space, and lack of trust in computer-based planning models can all contribute to the out-of-stock problem. Manufacturers need to be aware of the causes and guide the retailer into planning to avoid out-of-stocks–and disappointed shoppers!
The massive increase in promotional intensity puts even more strain on the supply chain. Manufacturers pay for the privilege of discounting their products, risking the integrity of their brands. They increase the costs of their own production by driving overtime and down time as they create artificial peaks and troughs in demand. They risk disappointing high-value, promotional demand. Store operations teams around the world acknowledge that despite all of the investment in supply chain systems and decades of supply chain initiatives, keeping products on the shelf is the toughest retail challenge. Longer opening hours haven’t helped, but the dramatic increases in promotional intensity have clearly contributed. There has to be a better way.
This blog found in Course 10: The True Cost of Discounting for the Retailer.
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