4 Ways Retailers Can Avoid the Costly Issue of Overstocking and Understocking
Overstocking and understocking can result in significant financial consequences for retailers. An IHL Group report estimated that inventory distortion, including overstocking and understocking, cost retailers a staggering $1.77 trillion globally in 2023 due to missed sales opportunities and increased operational inefficiencies. When products are unavailable, 31 percent of consumers go elsewhere, while 24 percent put off or abandon the purchase altogether. Overstocking ties up valuable cash flow, increases storage and holding costs, and can lead to products becoming outdated or unsellable, particularly for perishable goods.
These challenges compel businesses to discount heavily, further reducing profitability. With so many serious threats to your business caused by this problem, it’s important to get those areas under control as quickly as possible. Here are 4 ways to get a handle on overstocking and understocking.
1. Reduce returns as well as errors that cause them to occur
Returns are a regular occurrence and can happen for many reasons, but they can also be expensive. Shockingly, processing a return can cost up to 39 percent of the original price of the item being returned. So, while you can’t eliminate all returns, it is a worthwhile exercise to decrease their likelihood. You can do this with the right technology—technology that increases accuracy and reduces the chance of sending the wrong item, color, size, etc.
2. Be clear and upfront regarding your policies around fees
Nothing is more frustrating to a customer than going through the shopping and ordering process only to find out at the very end that the merchant has a “no returns” policy or charges a “restocking” fee. One of the easiest ways to prevent over- and understocking AND foster customer satisfaction is to clearly state your policies upfront before they start shopping. Clearly state your sale conditions, item limitations, delivery costs, return policies, and so forth. Otherwise, you risk losing their trust and their business.
3. Use a single retail management system across all locations
Retailers lost up to $223B annually due to disconnected systems. The main issue is data—it’s either not being collected consistently and thoroughly or not being shared appropriately across the organization. In short, you have no way of seeing the big picture if you can’t access and analyze your data. The primary reason retailers have data problems is that they use disconnected systems that can’t share data or communicate effectively. Moving to an integrated, comprehensive retail management system provides an efficient and accurate flow of information across all departments and locations, providing a real-time view of key areas like inventory in stock, sold, and in transit across the entire chain.
4. Connect all your sales channels
All retailers need to ensure their customers’ shopping experience is consistent and seamless. This is especially true with retailers that offer omnichannel shopping. For example, if you offer home delivery or click & collect, you must be sure you are always able to deliver these options efficiently and guarantee product availability. A retail management system that enables you to manage your inventory for both physical and online stores can help you prevent the risk of untimely stockouts and also eliminate the need to over-order to avoid stockouts. With a connected system, the eCommerce portal uses the general ledger to get real-time stock information, ensuring online product availability is always accurate.
Talk to the retail experts about tackling stocking issues and more
Revenue can take a hard hit when retailers are forced to keep extra inventory in stock or when they run out, but that does not have to be the case. “Retailers can realize huge gains by addressing opportunities that are in hand and slipping through enterprise fingers,” says IHL Group. “It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues.”. Contact ArcherPoint today to learn how we can help.