Where Did All the Stuff Go?
For your retail staff, it’s the worst game of hide and seek in the world, and they get to play it constantly. It goes something like this:
- Step One: You have a customer in the store, on the phone, or online that is looking for a particular item. (They may be angry, they may not—depends on how lucky you are today!)
- Step Two: Your team member checks the inventory system, which claims that the item is in stock.
- Step Three: Team member and customer now both scour the store (or look at warehouse locations and other stores) for the item. They won’t find it, and likely both will be frustrated in the end.
The reality is that you probably didn’t have the item in stock even before the customer started looking for it. That disconnect between what your inventory system claims to have, and what you actually have is called inventory distortion.
The good news is that you’re not alone in experiencing this. According to the IHL Group, a global research and advisory firm for retail, inventory distortion in 2023 was equivalent to 7.2% of retail sales. That means the industry collectively miscalculated inventory by more than $2.1 trillion dollars in sales globally in 2023 alone.
This is way bigger than someone putting an item on the wrong shelf. We’re dealing with a systemic problem here; in order to solve it, we first have to understand why it happens. Here at KWI, we help retailers navigate the complexities of modern retail, and we see five primary causes for inventory distortion.
Check out our Inventory Distortion infographic at the end of this blog post.
Supply Chain Issues
You can’t sell products if you can’t get them to the store. Retailers are constantly struggling with the disconnect between what they should have (ordered but not yet delivered) and what they actually have—and all too often, customers experience the frustration while team members pay the price.
At a deeper level, supply chain weakness and complexity has been ever-present in retail news, even dating back prior to Covid-19 and the associated disruptions it caused. While increased logistical flexibility is beginning to turn the corner on some of the costs and delays, the fact remains that far too many supply chains are reliant on singular points that are at risk of failure. (The 2024 collapse of the Francis Scott Key bridge in Baltimore is a prime example, and has caused a complete re-configuring of shipping pathways in the region.) Despite the recent innovation and new approaches (forced or unforced!), retailers are still dealing with a 142% increase in supply chain disruptions since 2020 alone.
Miscounts/Misforecasts
“What inventory do we really have?” According to an IBM research report from 2024, 56% of retail industry executives believe that inventory accuracy is a problem. According to Unleashed, 58% of retail brands and D2C manufacturers have below 80% inventory accuracy.
How could it get this bad? Lots of reasons: miscounts, underreporting, overreporting, delays in inventory reconciliation, unclear shipping and returns processes, and even stock levels for physical and online stores being held in separate systems. In the average organization, dozens of factors—both human and digital—contribute to an unclear and costly inventory picture.
Delays
Retail is just supply and demand, right? You know the customer demand, you supply it. In theory, that’s exactly how it works. Unfortunately, what if that supply gets delayed? In our complex world, not a day goes by without a headline featuring exactly that sort of scenario. Labor shortage, dock workers’ strike, cyber attacks, natural disasters, and more—all of them contribute to your products not arriving in time.
What happens then? You’re forced to discount or discard inventory. These kinds of delays and stockouts are estimated to cost retailers as much as $1 trillion or more per year—regardless of whether the cause is actually under your control.
Theft
It’s the ugly underbelly of retail that we don’t like to think about. Theft was estimated to cost retailers $121.6 billion in 2023, with that number projected to grow to over $150 billion by 2026. This includes not only the typical shoplifting losses, but also loss areas like cargo theft, fraudulent returns, and staff losses.
Personnel Issues
While some of these issues—like theft or delays—may not always be within our control, personnel issues certainly are. These represent loss related to personnel shortages or poor training. For example, a 2022 Labor Department report suggests that there are 5.5 million more job openings than workers to fill them, while a Deloitte report from that same year suggests that US retailers specifically will need to hire at least 1 million workers just to meet bare minimum demand.
These shortages—and the dropoff in training, experience, process familiarity, and institutional knowledge that goes with them—results in widespread costs via missed sales, overstocks, inventory loss, and more.
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.
