Q&A: Straightening Out Your Stockouts

With the holiday season nearly here, merchants are hoping that they projected correctly with inventory so they don’t end up with too much or too little. Multichannel Merchant senior writer Jim Tierney caught up with Bill Robinson, who is a senior adviser and sales executive at QuantiSense, to discuss the issue of stockouts and how to analyze them.

Q: Why are stockouts critical in retailing?
A:
Stockouts—when an item that should be part of a merchandise presentation is no longer available—are critical because sales are lost and customer loyalty is compromised.

Q: For multichannel retailers, how do stockouts affect each channel differently?
A:
When an item is stocked out in e-commerce or a catalog, it is typically backordered. This delays delivery, increases the risk of cancellation, and irritates customers. In conventional retailing, stockouts usually create all kinds of bad outcomes. Among them are lost sales, lost customers, and artificially high demand for any items that the shopper may have purchased as a substitute for the out-of-stock item.

Q: What is the difference between good, bad, and ugly stockouts?
A:
Good stockouts are those that sold out at full margin when they were intended to stock out. For example, Halloween masks sold out on Oct. 31.

Bad stockouts are those items that sold out before they were intended to stock out, but for which there were reasonable substitutes in the retailer’s assortment. For example, Halloween masks sold out on Oct. 24.

Ugly stocks are those items that sold early in the season, or were featured in a promotion, or were featured in a merchandise display, or which are bought by tier 1 customers, or which have extraordinarily high market-basket value.

Q: How can merchants facing problems with stockouts help themselves?
A:
Merchants can address stockouts by measuring them and placing values on their commercial impact. Personnel responsibility for inventory should be measured on these stockout metrics. The information should be shared across the supply chain with all trading partners in an effort to plan better.

Merchants can also employ time honored tactics to mitigate customer dissatisfaction—rain checks, customer coupons, searching for items in other stores, warehouses and so on.

Q: How often should companies track/monitor/analyze their stockout situation?
A:
They should monitor stocks continuously to find outliers and the situations that are most damaging to their brand, sales, and customer loyalty. Typically, this should be the worst five stores and the worst five categories every week.

Another important cycle is to learn from the overall performance of a season, tracking the most troublesome stores and assortments during a 13-week or 26-week period. This will help the buying for the next season.

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