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For the past few weeks we have been discussing the effect out-of-stock (OOS) and overstock have on the retail enterprise. These two occurrences are more than just a major source of frustration for retailers. According to IHL Group, a retail analyst firm, the combined costs of out-of-stock and overstock, which are caused by inventory distortion, adds up to a staggering $800 billion annually.
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Inventory distortion is costing retailers real money
Process is too often ‘assumed’ to be correct and working
The main reason employees are so resistant to new systems is that every new process will mean more reports. We all know that store level employees are already inundated with more reports then they can handle. Any time I meet a store manager I hear the same message: “We are receiving 70+ reports a day, but I only really read 7…”
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Increase Assortment and Raise Revenue – Part 2: Product Substitution
In the previous blog, “Increase Assortment and Raise Revenue – Part 1: New Product on Board”, we discussed the trend of retailers looking to boost sales by increasing assortment, either by adding new products or related services. To ensure the new product would lead to increased revenue, retailers must be able to continuously monitor on-shelf availability (OSA) and make sure the product is present when the consumer wants to make a purchase.
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Increase Assortment and Raise Revenue – Part 1: New Product on Board
Retailers are always looking to bring in more earnings, either through their existing revenue streams, or by introducing new products and/or services. Today more than ever, the retail industry seems to be focusing more towards the latter: in order to stay competitive and keep revenues rising, retailers are expanding through increased product and service assortment.
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The Three M’s – Merchandisers, Markdowns and Margins
I’ve spent quite a few years in the world of “markdown optimization” helping retailers implement solutions that determine the “optimal” price point that would give a sales lift while maximizing gross margins. From a store ops perspective taking markdowns too often is expensive as it means re-ticketing the items, moving merchandise to the back of a store and/or discounting merchandise shelved in proximity of the items that were marked down. Not to mention the fact that continuously changing prices also causes “paper shrinkage” from incorrect pricing or missed markdowns.
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Butchering Profits
Within any grocer, the meat department tends to have high margins, while at the same time experiencing high losses relative to other departments. This is due to the nature of the product, being highly sensitive and perishable, therefore spoilage and waste rates are fairly high and difficult to reduce. More importantly, the butchering of the meat that takes place is another, completely separate contributor to the high levels of loss in this department.
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Big Data – Insights to a Competitive Advantage
It is commonly thought that data is the foundation of information, and information is knowledge. Yet to gain true insight, large quantities of data may be needed. Today, big data is a term increasingly being used to describe the massive amounts of data being created, collected and stored by retailers in order to gain a competitive advantage. This advantage is gained through the insights developed from the analysis of the big data, which will enable retailers to make better-informed decisions. Using these insights, retailers can better understand consumer behavior and values, and where they fall short in addressing these needs.
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Excellence in the Ordinary – Part 2: Growing Revenue
In previous blogs (see Inventory Distortion – Part 1 & 2) we have discussed the advantages that can be gained from reducing inventory distortion, ensuring the right product is on the shelf at the right time; when the customer wants it. Determining how to minimize out-of-stock (OOS) issues, overstock issues, and confirm accurate on-shelf availability (OSA) may be easily discernible, but actual profit growth will only be achieved if the necessary actions are performed every day as needed. There are plenty of opportunities that will be generated through trend analysis, but actually capitalizing on these opportunities through the use of best practices is of key importance to achieve a highly efficient, revenue-building, and ultimately profitable retail environment.
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Excellence in the Ordinary – Part 1: Reducing Loss
We make a great deal of assumptions in retail operations about how effective our associates are performing, responding to the needs of the business, and complying with company policies and procedures. Assumptions are often made that business is progressing as usual. This leads to the retailers “getting comfortable” and only act when there is a catastrophic event of substantial impact. I often hear retailers say they want to see a “knock-my-socks-off” examples of loss, or that they “need to see the impact from a single big event.” The truth is, profit is lost slowly, little by little, and is recovered in the same manner. To emphasize my point, we can look at the recent case that occurred, or rather was discovered, in one of the premier home furnishing and cookware retailers here in the United States.
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Inventory Distortion – Part 2: Overstock: How much is too much?
Inventory distortion is an issue that can be analyzed and attacked from many different angles. It can develop from a number of sources, including distortions at the vendor level, or non-compliance and process failures at the POS. Attempting to ensure high enough inventory levels as to not encounter the daunting problem of out of stock (OOS) is a difficult enough task for retailers; but this difficulty is even greater when considering the possible problems and leakages that can occur from the opposite problem of too much inventory.
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