Stockouts occur when the inventory of a specific item is depleted. Stockouts can happen anywhere in the supply chain, but they significantly impact retail shelves and profits when they occur while a customer is trying to make a purchase.
What is a Stockout?
A stockout can be defined as the unavailability of specific items or products at the point of purchase when the customer is ready to buy. Stockouts cost retailers in the U.S. and Canada approximately $350 billion annually; in some vertical sectors, shoppers experience stockouts as frequently as every third shopping trip.
What Causes Stockouts?
While there are a few potential outcomes of stockouts, such as customer frustration and lost sales, there are many different scenarios that can lead to stockouts in the first place. Differences between the number of items
Cost of Stockouts
Stockouts have become very familiar to both retailers and consumers with increased demand for certain products and decreased supply. But what are the hidden costs of not having products available in inventory? Lost revenue
How Can Retailers Avoid Stockouts?
Many retailers react to stockouts instead of taking proactive steps to prevent them. But reacting means that retailers are always on the defense. With simple planning and the right tools, retailers can avoid stockouts and ensure their customers are satisfied. Reconciling differences in the number of items
How Can Retailers Avoid Stockouts?
Many retailers react to stockouts instead of taking proactive steps to prevent them. But reacting means that retailers are always on the defense. With simple planning and the right tools, retailers can avoid stockouts and ensure their customers are satisfied. Reconciling differences in the number of items
Improving Safety Stock
Another factor retailers should consider when forecasting the expected demand for specific products is “safety stock,” or the amount of inventory that a retailer keeps as a buffer against unexpected spikes in demand.
Managing Logistical Challenges
While retailers can’t exert much control over how and when their goods are shipped, there are a number of best practices that brands can follow to reduce the risk of stockouts due to logistical issues.
Replenishment Prompting
Another method retailers use to reduce stockouts is replenishment prompting. They use radio frequency identification (RFID) technology to store and track product information and maintain inventory accuracy.
Having Backup Suppliers
Ensuring a continuous supply of inventory is key to avoiding stockouts, and having additional backup suppliers also helps. During holiday periods, for example, when most retailers see increased sales volumes, demand spikes. If you rely on a single supplier to meet the increased demand, you risk stockouts.
Influencing Demand through Pricing
The law of demand states that as prices increase, buyers will demand a lower quantity of the economic good. Adjusting the price of your products will affect the number of people willing to buy them. If the product is nearing a stockout and demand is high, raise the price. This improves profits on the product and can reduce stockouts by decreasing demand.
Examples of Retailers Solving Stockout Issues
The fragrance retailer The Fragrance World found that social media promotion and reality television often lead to stockouts. The company’s founder, Katie Johnson, recalls a time in 2021 when a famous Love Island star mentioned a particular fragrance. “That night, we completely cleared our shelves because people were racing to get it,” she says. “It’s even harder when the product is slow-moving to get a large influx of orders.”
Changed
The way The Fragrance World dealt with inventory management due to the Love Island event by predicting and highlighting any potential spikes in consumer trends to ensure product availability. “We always look to the future and plan. We buy the product as far in advance as possible to always have a stock backup,” she says.
The luxury home and garden retailer RT1home has been receiving a lot of press promotions from sites like BuzzFeed and The Knot. It’s hard to prevent stockouts in these cases, but Rhiannon Taylor’s organization found that immediate response is key. “As soon as you notice a sales increase from a press article or influencer, restock it.”
In her daily operations, Rhiannon recommends conducting regular stock checks so that you are always aware of inventory levels. This gives you ample time to manufacture products (if you’re producing them in-house) or to place wholesale orders with suppliers.
Source: https://www.shopify.com/retail/what-causes-a-stockout
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