We underestimate the Knock-on effect

Last time I wrote about the consequences of out of stock situations, and how 48% of retailers in a recent survey[i] cited frequent out of stock situations as one of their greatest challenges.

What I didn’t discuss then, is the knock-on effect.

During the last fuel strike, many fuel stations had to close completely as their pumps were completely dry. When they ran out of fuel, they had no footfall into their stores and so they were unable to sell any of their ancillary products, milk, coffee, confectionery and so on. This is a great example where having one item out of stock can result in zero sales of a range of others.

The knock-on effect is a bit like a domino run, whereby the fate of swathes of dominoes are reliant upon the fate of one.  Push that over, and they all go down.  The economic principle of complementary goods, tells us that demand for one product will affect demand for the associated complementary products.  And if the key product is out of stock, there will be no sales of the rest.

If the suit you want isn’t in stock, you’re unlikely to buy a new shirt and tie.  If the fitness trainer you want isn’t available, you’re unlikely to buy a new water bottle or cycling jersey.

Every time we log a missed sales opportunity in our store or on our website, we need to be thinking about the knock-on effect.  That single missed opportunity might represent a much larger missed opportunity if we know the typical upsell value of our SKU catalogue.

One of the fundamental challenges in the retail industry is to understand what inventory we own, where it is in the supply chain, and whether it is truly available to meet customer demand in our stores or online.

Despite this, the same study found that 24% of retailers report an unclear view of inventory, whilst 21% admit it takes too long to find items.

If you’re already capturing the economic impact of out of stock situations, have you considered the knock-on effect?

Interested in more about this topic? Click here

[i] SML RFID STATE OF RETAIL INSIGHT REPORT Jan 2022