Why retailers & vendors must address shelf availability
In these economic times, retailers have pressed so hard for lean inventory that now many of their high volume stores are often out of stock. If the item is missing from the shelf, consumers are quickly turning to online retailers. Out of stocks represent “low hanging” fruit for capturing lost sales, and profit potential without additional market spend. As typical in retail, this sounds enticing. But, the harvesting this opportunity requires visible inventory and collaboration between both retailers and vendors.
How to beat online retail and make it easy to BUY NOW
How do you feel when you go to your store to purchase a preferred item only to find it missing on the shelf? Is it any wonder that you and millions of consumers are turning to Amazon and online retailers! The advantage of online retailers is their “virtual shelf” and the capacity to assort millions of items, with the ability to ship to your door.
While online retailers have an advantage of centralizing inventory in a few locations, they still must carry physical inventory to ship. And, in the case of Amazon, it now serves as the “umbrella” site for many smaller shops. While these online shops are great a posting a SKU on their site, they are no so great at being in-stock with availability to ship.
Retail is about the excitement of discovery and buying in the moment … off the shelf … right now.
Rule 1 for Bricks & Mortar: Be in stock on the shelf or risk losing the sale today … and the customer tomorrow.
When Walmart pounds the drum … listen and learn!
Walmart is often viewed as one of the most efficient big box retailers with the most sophisticated logistical systems in the world. Walmart’s “Retail Link” can literally report sales by hour by SKU down to store level. So it is surprising, and even shocking to see the Bloomberg headline: Wal-Mart Seeks $5 Billion U.S. Sales Gain Via Inventory
Walmart has been struggling to grow “comp store” sales for the last couple of years. So, it is no surprise that they are looking to grow sales and profits anyway they can. There are three things that jump out from the headline and the Bloomberg articles on the Walmart initiative:
- $5 Billion is not chump change – there’s gold in out of stocks!
- Even the biggest and best retailers are struggling with in-stocks.
- Walmart is hiring consultants to improve inventory!
The delicate balancing act – GMROII vs In-stock
There are a number of lessons to be learned by watching the Walmart story unfold. First and foremost, retailing is always a delicate balancing act between competing objectives and metrics.
A couple of years ago Walmart embarked on a “SKU Rationalization” project. In our previous posts, we described how Walmart was using metrics like GMROII to identify the highest profitability SKUs so that other brands could be removed from the floor. The objective was leaner, more profitable inventory. Only one problem … when mom didn’t find her favorite brand of soap or peanut butter, she shopped elsewhere.
Like most retailers, Walmart has been aggressively reducing staffing to cut SG&A (Sales General & Administrative costs). Only one problem … it does no good to have inventory in the backroom if there is not enough staff it get it on the shelf when you reach to purchase.
Why retailers and vendors must collaborate on in-stocksIn today’s competitive market place, there is no lack of competition! Walmart is now facing new bricks and mortar competition from the “dollar” style stores who are promoting even lower prices. And everyone, even Walmart, is facing increasing competition from Amazon who offers low price, often without sales tax, with amazing service to your doorstep. Reducing stocks is a perfect case for joint collaboration between vendors and retailers!
Both partners must have forecast and inventory visibility in order to ensure items is present on the shelf at the moment of truth. Simply put, there is too much at stake and millions of $ of opportunity if there is collaborative partnership. If retail stores do not address in stocks, consumers are literally voting with their plastic everyday online.
Harvesting out of stocks is profitable, but not so easy
The issue of being “out of stock” is like the proverbial duck. It is easy to identify on the surface, but there’s a whole host of things and root causes going on below the surface. If a vendor meets all of the retailer’s fill rate requirements to the distribution centers, the item can still be out of stock on the shelf if the retailer misses stocking, or if both partners miss the forecast of potential demand.
CPFR stands for Collaborative Planning Forecasting & Replenishment. It is one prime example of both the tools and processes required to create the joint collaborative discipline to manage both in stocks and over stocks. Through CPFR it quickly becomes evident that it is not a question of who is at “fault”, but how both must collaborate to identify, quantify and manage results that count on the bottom line.
IMS case study: Harvesting lost sales from out of stocks
As a company, IMS has had the opportunity to work extensively in the technology sector. In technology, the product life cycles are short, so you have to be in stock today to capture sales. We have engaged with a number of clients to harvest lost sales in categories with on-going and rapid replenishment. The keys to achieving results are:
- Joint visibility to “real time” inventory
- Standard definitions of out of stocks for both partners
- Tools and alerts in order to take action in time
What if you are not a Walmart or technology vendor? We have found that there are a number of “fundamental” principles that can be applied to POS data to dramatically improve in stocks and harvest lost sales.
IMS will be working with VCF to develop case studies of how to harvest low hanging fruit from out of stocks in a number of categories.
Stay tuned as we report Results that Count … along with some of the conversation of what is possible, and what is required.
- Hanging Fruit Tree Image: Sura Nualpradid; Freedigitalphotos.net
- Partnership Image: Stuart Miles, Freedigitalphotos.net