A stockout, or out-of-stock (OOS) event is an event that causes inventory to be exhausted. While out-of-stocks can occur along the entire supply chain, the most visible kind are retail out-of-stocks in the fast-moving consumer goods industry (e.g., sweets, diapers, fruits). Stockouts are the opposite of overstocks, where too much inventory is retained. A backorder is an order placed for an item which is out-of-stock and awaiting fulfillment. [1]
According to a study by researchers Thomas Gruen and Daniel Corsten, the global average level of out-of-stocks within retail fast-moving consumer goods sector across developed economies was 8.3% in 2008. [2] This means that shoppers would have a 42% chance of fulfilling a ten-item shopping list without encountering a stockout. Despite the initiatives designed to improve the collaboration of retailers and their suppliers, such as Efficient Consumer Response (ECR), and despite the increasing use of new technologies such as radio-frequency identification (RFID) and point-of-sales data analytics, this situation has improved little over the past decades. [3]
Recent surveys on retail out-of-stocks suggest that instore operations are fundamental to reducing retail out-of-stocks. [4] Around 70-90% of stockouts are caused by defective shelf replenishment practices, as opposed to the 10-30% resulting from the upstream supply chain, such as a shortage of supply from a supplier. [5] This broad knowledge offers retailers the opportunity to improve on-shelf availability through internal measures. However, it requires a detailed understanding of the causes of out-of-stocks.
A shortage of working capital may limit the value of orders that can be placed each month. This could be caused by poor cash flow management or other inventory issues such as too much cash tied up in high levels of excess.
Stockouts frustrate shoppers and force them to take a number of corrective actions that are beyond the retailer's control. Understanding how consumers respond to stockouts is therefore the starting point for retailers who wish to improve on-shelf availability. [6] When shoppers are unable to find an item that they had intended to purchase, they might switch stores, purchase substitute items (brand switch, size switch, category switch), postpone their purchase or decide not to buy the item at all. [7] Although these responses differ in severity, each entails negative consequences for retailers. Stockouts cause lost sales, dissatisfy shoppers, diminish store loyalty, jeopardize marketing efforts, and obstruct sales planning, because substitution disguises true demand. Moreover, shopper surveys reveal stockouts to currently be the most prevalent annoyance to shoppers. Shoppers spend a considerable amount of time looking for and asking for out-of-stock items. [8] Shopper response to stockouts has been investigated by researchers with respect to cognitive response (e.g. perceived availability), affective response (e.g. store satisfaction), behavioral response (e.g. brand switching) and aggregated response in terms of category sales effects. [9] Studies find shopper response to out-of stocks depends on brand-related antecedents (e.g. brand equity), product and category-related antecedents (hedonic level), store-related antecedents (e.g. service or price-oriented), shopper-related antecedents (e.g. shopper age) and situational antecedents (e.g. purchase urgency). [10]
Depending on the shopper response to an out-of-stock, manufacturer and retailer incur various losses. [11] Both manufacturer and retailer face a direct loss of the potential sale when a consumer faces an out-of-stock because the shopper purchases the item at another store or does not purchase it at all. Additionally, when a substitution is made, the retailer also loses an additional portion of the potential sale because the shopper tends to switch to smaller and/or cheaper substitutes. [4] In addition to the direct losses, both the retailer and the manufacturer incur additional indirect losses due to decreased customer satisfaction that results in less overall reliance on the particular retailers and brands. When an out-of-stock leads to purchase at another store, this provides the consumer an opportunity to try a different store. Consumer behavior theory argues that trial precedes adoption, and, thus, an out-of-stock sets the stage for possible permanent store switching. When an out-of-stock leads to purchase of a competing brand, the consumer trial can lead to possible permanent brand switching as well. [4] Research findings show that a typical retailer loses about 4 percent of sales due to having items out-of-stock. A loss of sales of 4 percent translates into an earnings per share loss of about $0.012 (1.2 cents) for the average firm in the grocery retailing sector, where the average earnings per share, already is about $0.25 (25 cents) per year. [4]
Identification of stock levels can reduce out-of-stocks. [12] The traditional method is to perform a manual audit of the store and manually look for "gaps" on the shelves. Due to differing sales velocities and replenishment schedules, the effectiveness of manual stockout audits depends heavily on their frequency and timing, and on avoiding human counting errors. [4] A second method makes use of point-of-sale data or, more specifically, scanner data. Based upon historical sales data, the latency period between sales is taken as a gauge of whether an item is on the shelf. It is a preferred method for investigating fast-selling retail items, such as soda cans. [13] Out-of-stocks may also be identified by using inventory data, depending on its accuracy. [14] Finally, various types of technology, such as RFID, shelf stoppers and weight or light sensors, can be used. A future-prediction report issued by Accenture in 2015 anticipated that "smart shelves" in stores will detect and report when inventory is running low. [15] However, these technologies are so far not equipped to monitor the condition of the retail items (e.g. undamaged labels).[ citation needed ]
A supermarket is a self-service shop offering a wide variety of food, beverages and household products, organized into sections. Strictly speaking, a supermarket is larger and has a wider selection than earlier grocery stores, but is smaller and more limited in the range of merchandise than a hypermarket or big-box market. In everyday American English usage, however, "grocery store" is often casually used as a synonym for "supermarket". The supermarket retail format first appeared around 1930 in the United States as the culmination of almost two decades of retail innovations, and began to spread to other countries after extensive worldwide publicity in 1956.
Shopping is an activity in which a customer browses the available goods or services presented by one or more retailers with the potential intent to purchase a suitable selection of them. A typology of shopper types has been developed by scholars which identifies one group of shoppers as recreational shoppers, that is, those who enjoy shopping and view it as a leisure activity.
Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and then sells in smaller quantities to consumers for a profit. Retailers are the final link in the supply chain from producers to consumers.
Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing communications for a predetermined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates.
Consumer behaviour is the study of individuals, groups, or organisations and all activities associated with the purchase, use and disposal of goods and services. It encompasses how the consumer's emotions, attitudes, and preferences affect buying behaviour. Consumer behaviour emerged in the 1940–1950s as a distinct sub-discipline of marketing, but has become an interdisciplinary social science that blends elements from psychology, sociology, social anthropology, anthropology, ethnography, ethnology, marketing, and economics.
Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser or a mobile app. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2020, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.
Fast-moving consumer goods (FMCG), also known as consumer packaged goods (CPG) or convenience goods, are products that are sold quickly and at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables.
Safety stock is a term used by logisticians to describe a level of extra stock that is maintained to mitigate risk of stockouts caused by uncertainties in supply and demand. Adequate safety stock levels permit business operations to proceed according to their plans. Safety stock is held when uncertainty exists in demand, supply, or manufacturing yield, and serves as an insurance against stockouts.
Scan-based trading (SBT) is the process by which suppliers maintain ownership of inventory within retailers' warehouses or stores until items are scanned at the point of sale. Suppliers, such as manufacturers or farmers, own the product until it is purchased by the customer, with the store or venue then buying the product from the supplier and reselling it to the customer. Analysts in the grocery sector estimate scan-based trading accounted for $21 billion dollars in consumer goods purchased in the grocery industry alone in 2020, or nearly 3% of overall sales.
Once the strategic plan is in place, retail managers turn to the more managerial aspects of planning. A retail mix is devised for the purpose of coordinating day-to-day tactical decisions. The retail marketing mix typically consists of six broad decision layers including product decisions, place decisions, promotion, price, personnel and presentation. The retail mix is loosely based on the marketing mix, but has been expanded and modified in line with the unique needs of the retail context. A number of scholars have argued for an expanded marketing, mix with the inclusion of two new Ps, namely, Personnel and Presentation since these contribute to the customer's unique retail experience and are the principal basis for retail differentiation. Yet other scholars argue that the Retail Format should be included. The modified retail marketing mix that is most commonly cited in textbooks is often called the 6 Ps of retailing.
Poundland Limited is a British variety store chain founded in 1990. It once sold most items at the single price of £1, including clearance items and proprietary brands. The first pilot store opened in December 1990 following numerous rejections by landlords who had reservations about allowing a single-price store to operate, fearing it could adversely affect the local competition. An estimated 7 million customers shopped in Poundland every week in 2016, many being female shoppers in the C1, C2, D and E categories. Following a drop in share price of over 50%, Poundland was acquired in August 2016 by Steinhoff International for £610 million.
Visual merchandising is the practice in the retail industry of optimizing the presentation of products and services to better highlight their features and benefits. The purpose of such visual merchandising is to attract, engage, and motivate the customer towards making a purchase.
In accounting, shrinkage or shrink occurs when a retailer has fewer items in stock than were expected by the inventory list. This can be caused by clerical error, or from goods being damaged, lost, or stolen between the point of manufacture and the point of sale. High shrinkage can adversely affect a retailer's profit.
Field inventory management, commonly known as inventory management, is the task of understanding the stock mix of a company and the handling of the different demands placed on that stock. The demands are influenced by both external and internal factors and are balanced by the creation of purchase order requests to keep supplies at a reasonable or prescribed level. Inventory management is important for every other business enterprise.
An electronic shelf label (ESL) system is used by retailers for displaying, typically on the front edge of retail shelving, product pricing on shelves that can automatically be updated or changed under the control of a central computer server.
Phantom inventory is a common expression for goods that an inventory accounting system considers to be on-hand at a storage location but are not available. This could be due to the items being moved without recording the change in the inventory accounting system, breakage, theft, data entry errors or deliberate fraud. The resulting discrepancy between the online inventory balance and physical availability can delay automated reordering and lead to out-of-stock incidents.
Return fraud is the act of defrauding a retail store by means of the return process. There are various ways in which this crime is committed. For example, the offender may return stolen merchandise to secure cash, steal receipts or receipt tape to enable a falsified return, or use somebody else's receipt to try to return an item picked up from a store shelf.
Everyday low price is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping. EDLP saves retail stores the effort and expense needed to mark down prices in the store during sale events, and is also believed to generate shopper loyalty. It was noted in 1994 that the Walmart retail chain in the United States, which follows an EDLP strategy, would buy "feature advertisements" in newspapers on a monthly basis, while its competitors would advertise weekly. Other firms that have implemented or promoted EDLP are Procter & Gamble, Food Lion, Gordmans and Winn-Dixie.
The retail format influences the consumer's store choice and addresses the consumer's expectations. At its most basic level, a retail format is a simple marketplace, that is; a location where goods and services are exchanged. In some parts of the world, the retail sector is still dominated by small family-run stores, but large retail chains are increasingly dominating the sector, because they can exert considerable buying power and pass on the savings in the form of lower prices. Many of these large retail chains also produce their own private labels which compete alongside manufacturer brands. Considerable consolidation of retail stores has changed the retail landscape, transferring power away from wholesalers and into the hands of the large retail chains.
