A Fresh Look at Overstocks
Everyone in retail agonizes over out-of-stocks (OOS), yet not the same attention is given to another serious challenge: overstocks.
The OOS issue is often exacerbated by a perception amongst shoppers that the likes of Amazon are rarely out of stock. While this isn’t really true (estimates are that Amazon is out of stock at similar rates to other retailers), physical and e-commerce retailers need to overcome that perception, and keep in-stock rates as high as possible to remain competitive.
But what about the impact of overstocks? What happens to product that isn’t sold and that retailers need to dispose of themselves? Aside from the damaging environmental impact of creating more waste, this also puts pressure on manufacturers to produce more at a faster rate with less resources, resulting in subpar standards when it comes to ethical and sustainable production. Why is there ever too much stock in stores when it is possible to run out of stock online?
Customers don’t like to be disappointed. To avoid this, all care is taken to make sure stores are well stocked. However, the new challenge for retailers is to achieve this without over-stocking.
Thus, companies need to pay as much attention to overstocks as they do to out-of-stocks. This is not only an environmental problem, but a financial one as well. According to a study conducted by IHL Group, overstocks contributed $471.9 billion in lost revenues globally, up 30 percent from years prior.
And the problem goes well beyond lost sales.
Sustainability issues in the supply chain are an increasingly important consideration in shopper purchasing decisions. There is an active war on waste; one that is resulting in a series of efforts to re-distribute leftover products to where they are needed.
New ways to recycle and reuse products are being developed throughout the industry — including among retailers —- to reduce what goes into landfills. For example, surfing brand Ripcurl allows shoppers to return old wetsuits in some of their stores so they can be recycled.
Despite the attention paid to the issue by shoppers, overstocks persist and there continues to be never-ending markdown cycles industry-wide. There are also introductory offers, mid-season sales and end of season sales, with “frenzy days,” like Black Friday scatted in between.
Combine these with the process used by some retailers to dispose of the unsaleable merchandise, like Burberry’s much talked about destruction of goods and H&M’s “pile of unsold stock” that was directly connected to poor inventory management, and the problem is clearly in need of a solution.
The primary culprits of the overstock issue have been around retailing almost since the beginning. These include:
• Overproduction. Customers expect retailers to deliver and not run out of stock. Disappointed customers in today’s environment don’t have to look far to take their wallet elsewhere, and they are doing so more than ever.
• Product data siloes. When stock isn’t consolidated in one inventory system, it can’t be re-distributed to go where it is needed. This inevitably will lead to situations where the retailer can’t fulfil a customer’s expectations. Meanwhile, when the store in the next suburb has too much of the same product, it’s marked down.
• Not all stock is visible online. If online customers can only access all “online inventory” they will more often experience OOS.
• Orders can’t be fulfilled from certain areas. If a customer orders an item but it is only available in one particular store, that store needs to be able to fulfil that order from another location or the sale is lost.
A Single Solution
The solution to the overstock issue and the flow on effects of decreased sustainability in production processes as well as increased waste, is to have a single version of inventory that is always available and automatically updated.
This allows stock to be managed more carefully, saving sales and meeting customers’ expectations, while not wasting stock and limiting markdowns (think endless aisle). Adding more fulfillment options and locations means orders can be made and delivered via any channel, anywhere.
Finally, collecting data on all orders with fulfillment locations, demand and stock movement gives retailers invaluable insight to avoid overproduction.
Using new order management technology for example, the Glue Store, a youth-oriented fast fashion retailer, has tripled the inventory they can access and has much more flexibility to fulfil orders. The new system automatically balances inventory, so products go to the stores where customers are demanding them, avoiding stores to carry too much stock.
Most overstock issues can be addressed quickly and easily with a real-time, global view of inventory availability coupled with the ability to move stock around depending on demand. This means that every sale can be fulfilled while significantly reducing the need to carry excessive stock.