It’s More Than Just a Missed Sale
There are a thousand options competing for your customer’s hard earned dollar. Brands throwing ads on every surface they glance at, promotions from your competitors filling their inbox, and their social media algorithm is drowning in “sponsored content,” all featuring reasons they should shop elsewhere. And yet, in spite of all of that, they chose you. They chose your product, your store, your promotion.
Or at least they did…until that one item they wanted turned out to be out of stock. They’re out the door, a lost opportunity walking away thanks to inventory distortion.
If you’re unfamiliar with the term, inventory distortion is the discrepancy between what your system says you have in stock and what you actually have in stock. There are tons of different ways it happens—we’ve unpacked some of them here—but the important thing to recognize is that it is costing you more than just that one missed sale. This is actually a huge systemic problem throughout retail, and as leaders, it’s on us to see and address the larger issues in order to position our organizations for success.
Check out our Inventory Distortion infographic at the end of this blog post.
So what else is inventory distortion costing us? Four things:
Poor First Impressions
Let’s do a little quiz—what percentage of customers report leaving a store empty handed simply because they couldn’t find what they needed? 67.3%. That’s right, over 2/3rds of customers will leave a store immediately if they can’t find the thing they came for.
The even crazier part? That survey was done in 2018. Before Covid. Before omnichannel. Before pervasive same-day shipping. Chances are good that number is through the roof now.
If you’ve been around this industry for a while, you already know this—first impressions matter. Our brains are wired to reduce complexity and energy spend in decision making, which means that your customer will unconsciously look for nearly any reason to exclude a product—even yours!—as a viable option.
If it isn’t available? If they have to wait? If the line is too long because staff are trying to track down products for other customers? They’re out the door before you even realize they’re gone.
Lower Gross Margins
This feels like a no brainer, right? After all, if enough missed sales occur, of course we’ll be dealing with lower gross margins. According to the IHL Group, a global research and advisory firm for retail, those out-of-stocks cost retailers $1.2 trillion in losses in 2023. However, that isn’t the whole picture.
In fact, there’s another side to the coin as well—inventory distortion isn’t just missing product, it’s also having more product than anticipated. Retailers are often forced to heavily discount or even discard these excess items, resulting in an additional $562 billion in losses in 2023.
No matter which direction the inventory discrepancy swings, it’s costing your bottom line.
Increased Marketing Costs
What do after-Christmas sales and celebrity diets have in common? They’re both examples of spending extra money in an attempt to offload excess inventory. It doesn’t matter if it’s your backroom or your waistline—trying to get rid of extra products always costs more than you expect.
It isn’t just the increased advertising spend that you have to account for either. The average retailer is also facing additional carrying costs for excess inventory (estimated to be 25-32% of overall inventory costs) and a 30% loss in overall value of the excess product. What’s more, these sales can erode brand value, setting an expectation with customers that they can get products cheaper if they wait or—even worse—devaluing the product and brand as a whole.
It’s an awfully expensive sale to run.
Customer Dissatisfaction
Finally, there’s the cost that we most readily see—a disappointed or frustrated customer, walking out of the store empty handed. And while in-store sales are estimated to be 83% of total retail sales as of June 2024, that 17% of online sales—approximately $1.5 trillion in sales—is growing at a double-digit pace. That means that soon we could be grappling with a landscape where 1/3rd or more of dissatisfied customers are never even visible to us at all.
The clock is ticking, and we have to solve the root inventory issue.
We’re Here to Help
At KWI, we’ve been working with retailers of all sizes for over 40 years, so we understand this problem inside and out—in fact, if you want a deeper dive on inventory distortion, [click here] to see our infographic Where did Retail Sales Go?
But identifying your inventory problem is only one piece of the puzzle—you need to be able to solve it too. Fortunately, we can help with that as well. Whether it’s with tools like our Merchandising solution—a one-stop shop to manage products, distribution, pricing, and overall inventory strategy—or by partnering with our retail experts, we want to help you succeed.
We’re Here to Help
Inventory distortion is a complex problem, with roots in virtually every component of the modern retail organization. To see the bigger picture of inventory distortion, [click here] to see our infographic Where Did Retail Sales Go?
At KWI, we don’t just want to help you understand the problem, we want to help you deal with it. Whether it’s with tools like our Merchandising solution—a one-stop shop to manage products, distribution, pricing, and overall inventory strategy—or by partnering with our retail experts, we want to help you succeed. We’ve spent 40 years helping retailers of all sizes become more efficient, profitable, and innovative. No matter what challenge you’re facing, we’re ready.
Contact us today at sales@kwi.com or 1-800-873-5944 to schedule a consultation.
