The Balance of Power: Five Key Practices to Reduce Retail Stockouts
Life is all about balance, and this is especially true for retailers managing their stock. Excess inventory leads to backups and wasted space, while insufficient stock risks disappointing customers and damaging a company’s reputation. The fundamental issue is that many retailers, physical or online, lack the necessary insights to manage their stock effectively. Remember, your customers’ satisfaction is a key factor in shaping your business’s reputation.
A global research and advisory firm, IHL Group, conducted a study titled “True Cost of Out-of-Stocks and Overstocks—Can Retailers Handle the Truth?” The study revealed that retailers missed out on over $349 billion in sales due to stockouts. This staggering figure underscores the significant financial benefits of reducing stockouts. Additionally, the study highlighted that inventory counts were inaccurate by 25%, indicating a substantial opportunity for improvement.
Research from Boston College also found that customers were 25% less likely to purchase items if they were low in stock.
So, how can retailers prevent these scenarios? Let’s explore five ways to improve inventory efficiency.
1. Ensure your data is reliable and up to date
Successful retailers constantly juggle multiple tasks; the last thing they need is unreliable and time-consuming data. Real-time stock tracking across all channels is essential to keep up with customer demands. A centralized system connecting online and physical stores provides the tools to see exactly how products are selling at each location, identify stock shortages, and determine which products sell faster than others. This reliable data streamlines your workload and enables you to measure and optimize your time and inventory effectively and accurately.
2. Understand the impact of events and promotions
Significant events or holidays, such as Christmas, the start of spring, Black Friday, and back-to-school time, can significantly impact sales performance. Are you equipped to compare these events each year, no matter when they fall, and prepare properly? To truly understand your sales performance, you need to refine your sales history data and be precise about the information you have.
To effectively forecast future demand, it’s essential to account for irregularities and pinpoint products with distinct lifecycle trends, like swimwear and holiday decorations, while also considering regional differences.
In the same way, discounts and promotions can heavily influence in-store sales volumes. To mitigate the risk of under-stocking and running out of popular items prematurely, it’s important to examine past sales spikes. This lets you pinpoint which products were most successful and when facilitating more effective planning for future promotions.
3. Implement tools to redistribute stock effectively
There are effective ways to optimize your stock at the store level by using digital workflows to identify which stores lack certain items and which have a surplus. This allows you to determine where products might perform better and transfer stock between locations seamlessly. This is especially important in the fashion sector, where trends change swiftly and clothing lifecycles are limited. In-season inventory redistribution is almost inevitable, so reacting quickly is critical to minimizing lost sales and avoiding markdowns on excess products.
4. Anticipate demand
Remember the statistic about losing 25% of business due to low availability? Anticipating demand can significantly reduce this risk by accurately determining what products to order, how much, and when to order. Automating basic replenishment tools can calculate all these factors based on previous store trends. This ensures optimal stock levels for various sizes, colors, models, and more while tracking the frequency of out-of-stock situations.
5. Identify trends and customer preferences
Trends may come and go, but staying on top of consumer preferences does not. Retailers need to figure out what their customers are buying. Once you understand your customers’ shopping habits, you’ll know how to adjust your stock to meet their preferences and stay competitive. Using powerful technology to turn data into actionable insights will help you spot shopping patterns and ensure the right products are delivered and replenished where needed to avoid stockouts.
Effective inventory management is vital for retailers to strike the right balance and satisfy customer demands. Retailers can streamline their inventory processes by focusing on reliable data, anticipating demand, understanding the effects of events and promotions, utilizing stock redistribution tools, and identifying trends and customer preferences. This approach avoids the high costs of overstock and stockouts and boosts customer satisfaction and sales. Leveraging cutting-edge technology to convert data into actionable insights is crucial for staying competitive in a fast-paced market. With these methods, retailers can adeptly manage inventory challenges and excel in the retail industry.
Ready to find balance? Contact ArcherPoint to learn how our solutions can help you achieve success.