the global out-of-stock crisis - gt...

The Global Out-of-Stock Crisis

www.gtnexus.com © 2015 GT Nexus, an Infor company. All rights reserved2

Table of Contents Executive Summary ………………………………………………………………………………………………… 3

Global Key Findings ………………………………………………………………………………………………… 4

World View Highlights ……………………………………………………………………………………………… 5

Regional Analysis …………………………………………………………………………………………………… 6

Conclusion ………………………………………………………………………………………………………… 11

Survey Demographic ……………………………………………………………………………………………… 11


Executive Summary

The single worst scenario a retailer can face is an out-of-stock situation, particularly during crucial holiday and limited life seasons. Retailers are already preparing for the much-anticipated Christmas shopping and winter holiday season, and are doing their best to get a handle on the right levels of inventory. Why? 1. The revenue earned during crucial holiday season will make or break most retailers.

2. There is no quicker way to simultaneously diminish brand value, lose customer loyalty, expose consumers to competitive brands, and miss revenue goals than to suffer from stock-outs.

The introduction of omnichannel shopping has created an even tighter strain on fulfillment as most retailers silo their inventory on a channel-by-channel basis. Omnichannel has gained immense attention in the retail industry as new technology continues to change consumer behavior. In this cross-channel world where consumers can shop in store, via tablet, mobile, websites, catalogs, or a combination of these platforms, retailers are mak-ing even more financial investments into creating a seamless experience for the customer, a quality that has been lacking due to siloed channel operations. Customers want to be able to place an order online and return in store, and ensure they have a full assortment of purchasing options across all channels. To this end, retail-ers have made investments on the front end of the experience, with a heavy focus on easy payment options, delivery methods, and advanced user interfaces. However, consumers also have high expectations of fulfillment across the omnichannel, and retailers should not underestimate or underinvest in technologies designed to bet-ter coordinate supply chains and inventory flows.

The result: Unprecedented levels of out-of-stock inventory. So how much does this unavailable inventory impact retailers in the eye of the consumer? GT Nexus issued a survey to consumers across the United States, the United Kingdom, France and Germany to answer that question; reaching over 5,000 respondents globally. The survey shed a stark light on the frustrations felt by consumers, which were prolific in the retail space. The resounding result was annoyance with out-of-stock inventory and retreat to competitive brands. Globally, 81% of adults have tried to purchase a product that was out-of-stock in a brick-and-mortar store. Almost as significant, was the 65% of online shoppers who faced the same experience, only to find a competitor carried the same or similar product to be purchased at the click of a button. Almost one third of shoppers experienced stock-outs frequently, and approximately half of shoppers blamed the retailer when product was unavailable. This is often a retailer’s biggest fear, as recruiting first time shoppers to a brand takes almost ten times the marketing dollars as maintaining existing loyal customers. This recruitment cost is only growing with the presence of the elusive millen-nial customer, experiencing out-of-stock inventory at the highest rate. Millennials are known to shop around and are difficult to be won over, and poor customer experience will quickly send millennials to competitor brands.

With the holiday seasons on the horizon, the survey shows a massive gap between consumer expectations and retailers’ ability to fulfill those expectations. The inability to align supply with consumer demand is reflective of global supply chains that lack connectivity and true visibility into inventory. The study results indicate significant impact upon sales and retail brands. “This study shines a spotlight on a global inventory crisis that is being felt


directly by consumers, but retailers are paying the price in the end,” points out Kurt Cavano, Founder and Chief Strategy Officer at GT Nexus. “In today’s competitive environment, it’s extremely difficult to win consumers. Losing them due to stock-out is very damaging. It raises the suggestion to retailers that, ‘If you can’t execute well on omnichannel, maybe you shouldn’t offer it at all.’ Retailers have to take a multienterprise approach to enable the omnichannel supply chain, if they are to effectively and profitably meet consumer demands.”

“In today’s competitive environment, it’s extremely difficult to win consumers. Losing them due to stock-out is very damaging.”

Consumers expect retailers to fill orders from any channel efficiently and on time. Omnichannel shopping is a growing global trend, and retailers need to focus on reallocating spend from front-end consumerism to back-end logistics. Retailers will need to create a seamless supply chain process, starting with procurement and end-ing with delivery to customer, to successfully meet these new consumer expectations.

Global Key FindingsWhile the study covered an extensive range of habits, experiences, and preferences by geographic region, there were 5 key findings in the results:

1. A high majority of consumers experienced stock-outs when trying to purchase a product in the past 12 months. Across the globe, consumers were disappointed by out-of-stock inventory. A whopping 75% of US adults have suffered from unavailable product in store. This number is even higher in Europe where stock-outs affected a range of 82-86% of consumers.

2. Consumers were consistently more frustrated when personal products & apparel or consumer elec-tronics were out-of-stock. Consumers cite specific frustration when dealing with certain retail segments. Fashion & apparel and personal products, along with electronics resulted in double the level of annoyance for the purchaser, as compared to less valued products like household items, and leisure items.

3. Stock-outs result in a negative impression of the retailer in consumers’ minds. Consumers hold the retailer responsible when their desired inventory is out-of-stock, and don’t consider other issues like labor strikes, weather conditions, etc. when pointing the finger at why their favorite product is unavailable. In the US and UK, 33% and 41% of consumers blamed the retailer specifically, while in France and Germany 65-66% of respondents blamed the retailer.

4. Shoppers are compelled to take their business to competitors when faced with an out-of-stock product. Approximately 60% of in-store shoppers and almost 70% of online shoppers became ‘lost sales’ when faced with a stock-out. As on-line shopping grows exponentially, it’s important for retailers to consider the ease at which a customer can quickly move to a competitor site and purchase an identical item.

5. Millennials are the group most affected by stock-outs. Across the globe, millennials consistently reported facing greater stock-outs at almost double the rates of their more mature counterparts. This is likely correlated to their greater use of omnichannel purchasing, an area where retailers still struggle to fulfill against. Losing this crucial demographic due to stock-outs is sealing the fate of many retailers who are look-ing to build loyalty and returning customers for an increase in CAGR.


Stock-Outs are a global issue, with varying levels of impact

United States

• 75% of all US adults have suffered from an unavailable product in-store in the last 12 months (63% online)

• 38% of US shoppers experienced in-store stock-outs often or very often in the last year

• 26% of US shoppers experienced online stock-outs often or very often in the last year

• 33% of disappointed in-store shoppers blamed the retailer when a product was unavailable

• 58% of disappointed in-store shoppers be-came lost sales – where shoppers bought from another retailer or did not buy at all

• 65% of disappointed online shoppers be-came lost sales

United Kingdom

• 83% of UK adults have suffered from an unavailable product in-store in the last 12 months (70% online)

• 21% of UK adults experienced in-store stock-outs often

• 41% of disappointed in-store shoppers blamed the retailer when the product was unavailable

• 57% of disappointed in-store shoppers be-came lost sales


France

• 82% of shoppers in-store have experienced a stock-out in the last year

• 62% of online shop-pers have experienced a stock-out in the last year

• 55% of shoppers in-store who experienced a stock-out resulted in a lost sale

• 65% of shoppers on-line who experienced a stock-out resulted in a lost sale

• 65% of consumers blame the retailer for the stock-out issue

Germany

• 86% of consumers experienced stock-outs in stores in the last 12 months

• One out of three cus-tomers experienced this often or very often in stores; 45% within age group 25-44

• 63% of respondents ended up buying the product at a competitor or not at all

• 54% of respondents blame the retailer or manufacturer



REGIONAL ANALYSISBelow is an expansion of regional fi ndings with accompanying graphics to illustrate data:

United States

Retail has always been a key driver of the economy in the US, based on disposable income and the availability of credit via bank-issued credit cards, or retail issued cards. The peak of fi nancial health was experienced just prior to the stock market crash in September 2008, after which the economy was dismal for the following few years. Retailers had to make conservative decisions, being careful to limit inventory, freeze investment in innova-tion, whilst trying to retain customers in a debt-fi lled consumer base. In the past three years, the US economy has turned around with unemployment under 5%, and exponential growth in the tech industry leading to omnichannel expansion as shoppers leverage their mobile phones, tablets, etc. to peruse and order items at the touch of a button. That left many retailers with a huge chasm to fi ll, moving from a conservative position, to now aggressively investing capital in both inventory and technology to drive their businesses, and compete with new entrants who have used this opportunity to build completely new business models, competing with the old regime of retail.

While the United States appears to have less stock-outs than their European counterparts, fulfi llment has been a tremendous pain point of US retail markets. According to fi gure 1 below, while 75% of US Adults suffered an out-of-stock this year, the most concerning piece to retailers should be the presence of lost sales, signifi cant in brick and mortar stores, but disastrous when applied to online shoppers (fi gure 2, page 7).

Figure 1: How often US consumers experience stock-outs in the past 12 months

75%

38%

Consumer Pain

of all US adults have suffered from an unavailable product in-store in the last 12 months (63% online).

of US shoppers experienced in-store stock outs often or very often in the last year (26% online).

Retailers invest heavily to draw customers but lack capabilities to meet demand.


Figure 2: Lost sales due to out-of-stock inventory

33%

58%

65%

The Cost to Retailers: Eroded Sales and Brand

of in-store shoppers blamed the retailer when a product was unavailable.

of in-store shoppers became lost sales – where shoppers bought from another retailer or did not buy at all.

of online shoppers became lost sales.

The omnichannel supply chain will continue to evolve with the customers’ needs. It will get smarter, more agile and have a tighter control on inventory. As it stands today, consumers are being underserviced while at the same time, retailers are struggling to turn profi t in an omnichannel world. These two factors are raising the urgency to adapt. In the near future, retailers will operate their supply chains as networks, instead of a series of one-to-one connections. The network will be a powerful connection that enables a recipe of shared data, inventory visibility, collaboration and execution to deliver the right product through the desired channel, in a way that does not strain the retailer or wipe out its margins. This is still a few years away.

United Kingdom

The United Kingdom is equally challenged by the stock-out paradox. According to over 2,000 consumers’ surveyed, many of them were unable to buy the product they wanted despite living in the golden age of data. 83% of UK consumers found the product they wanted to buy unavailable in-store during the past 12 months, while 70% have found the same issue with online. Highlighting the paradox that in this golden age of ubiquitous data and the con-nected consumer – where retailers have access to unprecedented levels of information on shopping behavior and trends – planning and prediction efforts are still not guaranteeing that retailers can meet buyer demand.

Figure 3: UK fi nds stock-out severely challenging. Particularly in clothing and footwear.

Retailers invest heavily to draw customers but lack capabilities to meet demand.

Consumer PainWhen asked about their most frustrating experience of out of stock items; a third of UK shoppers said the product they wanted to purchase (in-store or online) but was unavailable was a clothing and footwear item.

84%

of all UK shoppers experienced a stock-out when they tried to buy a product in a retail store during the last 12 months (70% online).

of the Millennials surveyed experienced a stock-out when they tried to buy a product in a retail store during the last 12 months (Millennial shoppers defined as ages 18-34).

83%


The online survey found that retailers can pay a heavy price for stock-outs. When recalling the most frustrating in-store stock-out in the last 12 months, 57% of disappointed in-store shoppers said it resulted in a lost sale for their fi rst-choice retailer – they took their business elsewhere or didn’t buy at all. The impact is even more acute for online retailers as 65%of disappointed online shoppers bought from another site, store, or abandoned their intention to buy entirely (see fi gure 4). The availability of fashion and footwear caused most frustration; when asked about their most frustrating experience of out-of-stock items, a third of disappointed UK shoppers (33% in-store; 34% online) said the product they wanted to purchase but was unavailable was a clothing and footwear item.

Figure 4: Stock-outs come at a high cost to retailers

41%

57%

64%

of disappointed in-store shoppers blamed the retailer when a product was unavailable.

of disappointed in-store shoppers became lost sales – where shoppers bought from another retailer or did not buy at all.

of online shoppers became lost sales.

The Cost to Retailers: Eroded Sales and Brand

Unfortunately, with the winter holiday season around the corner, the online survey on the whole indicates a massive gap between consumer expectations and retailers’ ability to fulfi ll them. The results indicate signifi cant impact upon sales; another area of particular concern for retailers, most notably, is that 84% of millennials (18-34 years) found they couldn’t always get what they were looking for in-store in the last 12 months. An ever-demanding priority target market, that by nature does not subscribe to brand loyalty like the generations before it, today’s retailers would be remiss to let their brand reputation suffer in the eyes of these shoppers.

In the main, shoppers showed limited sympathy for retailers facing issues that can impact stock levels such as natural disasters or strikes. On the occasion when shoppers were most frustrated by their desired item being unavailable, 41% of disappointed in-store shoppers blamed the retailer, with 32% of online shoppers believing the same. Only 4% and 5% respectively considered it could be down to an external reason beyond the retailer’s or manufacturer’s control.

France

French consumers operate in an inelastic economy, letting purchases be less affected by economic health at a given point. Home to the fashion capital of the world, France is a retail-driven population. While apparel counts for much of the purchased inventory, increasingly diverse expenditures are infi ltrating French pocket books. Europe’s population is aging overall, and France is no exception, with retailers challenged to target the mature households headed by someone 55 or older, that will account for more than half of households by 2030.


From a behavioral standpoint, the French consumer is slightly less price conscious than their German counter-parts. Instead, they value quality, and labels, and are willing to pay a premium for high-end packaging. Overall the French consumer is affl uent, relatively impulsive, makes frequent purchases and likes to try new and innovative products. This makes the luxury markets particularly attractive in France. Given the willingness of French consumers to spend their money on local brands and retailers, a seemingly easier supply chain model, the French consumers faced the same stock-out perils as other countries. A full 82% of shoppers experienced stock-outs in store, whilst 62% were out-of-stock online. Given the innovation around front end technology, a source of excitement for French shoppers, there’s great disappointment around retailers who can’t deliver. The study revealed only 10% of consumers feel that outside reasons contribute to inventory failures, and hence walk-away from retailers who disappoint them.

Figure 5: Despite purchasing local, French shoppers experience one of the highest stock-out rates

82%

of French shoppers suffered from stock-outs within the past 12 months in brick and mortar stores

Stock outs for clothes and shoes: Consumers experienced greater frustrations with these items for 32% of on line shoppers and 25% of brick-and-mortar shoppers

Figure 6: French consumers hold retailers accountable for their troubles

Who is at fault? Only 10% of French consumers associated stock-outs with external reasons like natural castrophes or damaged inventory at no fault of the retailer.

Germany

The retail space has continued to grow in Germany, in large part due to the health of internet retailing, spe-cifi cally via mobile channels. Many consumer segments are becoming increasingly tech savvy, and are spend-ing more time online to make their purchases. Germans tend to be very price-conscious, which is enabled by show-rooming and other facets of multichannel shopping. Again, the retailer is put in a position where they are making front end investments, knowing the back end capability to fulfi ll must be there if they want to continue to fl ourish. Beginning in 2017, the German population will decline, hence demanding retailers work even harder to protect their customer base. Despite this, Germans experienced the greatest stock-out rates, at a whopping 86% of consumers reporting their goods were unavailable in-store.


Figure 7: Germans face the highest level of out-of-stock inventory.

in-store stock-outs are common

86%

of consumers experienced stock-outs in stores in the past 12 months.

One out of three customers experienced this often or very often in stores.

Even Higher percentages (45%) within age group 25-44 which is very relevent to retailers.

A third of those respondents said this happened to them frequently. The most alarming part of the survey was that 63% of consumers who experienced out-of-stock when buying, gave their purchases to a competitor or did not buy at all. This is often a retailer’s biggest fear, as recruiting fi rst time shoppers to a brand takes approxi-mately ten times the marketing dollars as maintaining existing loyal customers. In particular, the elusive millen-nial customer also factored into the survey, experiencing out-of-stock inventory at the highest rate. Millennials are known to shop around and are diffi cult to be ‘won over’, and poor customer experience will quickly send millennials to competitor brands.

Figure 8: Germans are eager to buy from competitors for a better value.

30%

15%

18%

bought it in another store from another retailer

bought it in an online shop

did not buy the product at all

63%

stock-outs = lost business

of respondents ended up buying the product from a competitor or not at all

Figure 9: German retailers are likely to blame the retailer over external causes for stock-outs.

It’s the retailers fault? Only 11% think the reasons for Stock-outs come from external e.g. strikes, natural disasters.

54%

of respondents think it’s a problem with the retailer (inventory planning) or manufacturer (production shortages/planning)


ConclusionGlobal commerce is growing in complexity -- companies must give their customers visibility into both online and in-store inventory and allow them to purchase, pick up, or receive deliveries seamlessly from any channel in order to stay relevant. Those that fail to do this will lose ground to their competitors, as disappointed customers flock to retailers that have embraced an omnichannel strategy. One of the top challenges retailers face in the back end is inventory management. More specifically how to reconcile excess inventory, which leads to mark downs and bleeding margins with stock-outs resulting in immeasurable lost sales. This can be especially detri-mental during holiday, and other promotional times, where one week can account for 25% of a retailer’s annual revenue. Retailers always struggle to find the optimal balance between excess inventory and out-of-stock inven-tory situations. Excess inventory leads to eventual mark-downs that are so significant they can often lead to an overall loss for the retailer. Alternatively, out-of-stock inventory results in frustration for the customer, not only leading to the immediate loss of revenue, but future losses as the consumer is forced to seek out products, and thus familiarity, from competitor brands. Stock-outs during holiday time or inability to fulfill has an emotional connection to it - disappointed children at holiday time is a very negative vision to connect to a brand. While the conundrum of having inventory at the right place at the right time seems irreconcilable, there are several factors that suggest stocks-outs are the greater of the two evils.

Flexible fulfillment requires flexible production and delivery. This means an agile supply chain capable of not only taking in demand signals and addressing them on the production side, but being able to know where all inven-tory resides – a network inventory view – to rapidly allocate channel and region specific assortment-skus, to fulfill a particular order. The biggest challenges stem from lack of fluidity when it comes to inventory allocation and fulfillment, and an inability to know where inventory resides across the supply chain. Most retailers don’t have a clear view of what’s in-factory available to ship, what’s in-transit, and what’s at the DC. Obtaining all of this, wrapped into a single view, remains a challenge. There’s no bolt-on solution for omnichannel fulfillment. There are a handful of solutions that can enable retailers to get closer to fulfilling the omnichannel promise. One of these is cloud technology, which can be applied as the network underpinnings to connect retailers with all of their trading partners. The platform and its connectivity can be deployed as the cornerstone, or system of record, for data sharing and collaboration. With this in hand, supply chain big data and inventory intelligence can come into play. If the right connective tissue is in-place, the supply chain can begin to harness this blend of collaboration, visibility and intelligence to execute and profitably fulfill demand.

Survey DemographicsThis survey was conducted using an online interview administered to members of the YouGov Plc panel. The survey was distributed to individuals in the UK, US, France and Germany. Fieldwork was undertaken between August and September, 2015. Respondents were represented by equal genders, part-time/full-time workers, students, retirees, and those with and without partners. Age categories were segmented in the following break-outs: 18-34, 35-54, and 55+. Survey questions were administered to each regional group, specifically targeting experiences around stock-outs.

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