IHL Group: Inventory issues cause $1.7T in annual losses
Over- and under-stocks present a major financial challenge to retailers, but next-gen technology can help mitigate their impact.
New research from IHL Group indicates the global retail loses $1.73 trillion annually due to inventory distortion (the cost of out-of-stocks and overstocks). The problem continues despite the global retail industry spending $172 billion in improvements during the past year.
IHL Group’s analysis of worldwide retail operations shows inventory distortion now represents 6.5% of global retail sales, down from previous years but still equivalent to South Korea's entire gross domestic product.
Specific inventory distortion trends uncovered by the study include:
Disruption
The study identifies supply chain disruption as the largest single contributor to global inventory distortion, accounting for $301 billion in annual losses. According to IHL Group, geographic chokepoints including the Suez Canal and Panama Canal continue having an impact while tariff uncertainties force retailers into complex inventory positioning strategies and personnel issues contribute an additional $248 billion globally
[READ MORE: Imports decline after summer surge; trade outlook for rest of year not ‘optimistic’]
Theft
Organized retail crime and theft jumped to $379 billion globally, according to IHL Group. While showing improvements with more stringent prosecution in 2025 in the U.S., IHL Group research shows that accuracy of tracking retail remains compromised by shrinkage at store, warehouse, and supply chain levels.
By segment, specialty hardgoods retailers faced the highest overall inventory distortion costs, while food and grocery segments had a 43.5% improvement rate, the strongest across all analyzed segments.
Regional performance disparities
Asia-Pacific continues to lead losses by global region at $642 billion (37% of worldwide distortion), However, IHL Group analysis shows a 19.1% improvement trajectory.
The Europe, Middle East, and Africa (EMEA) region has achieved the strongest improvement rates tracked in the study at 31.1% since 2020, while IHL Group says North America's $415 billion in regional losses reflect unique challenges from elevated theft rates, tariffs and supply chain pressures.
"The regional variations tell a compelling story about different approaches to modernization," said Greg Buzek, president of IHL Group. "EMEA's rapid adoption of advanced inventory management technology and coordinated supplier practices is paying dividends, while North America continues to battle the whack-a-mole game of solving one crisis only to have another emerge."
AI makes a difference
The study also reveals a widening performance gap between retailers utilizing artificial intelligence-driven inventory management and those continuing to use traditional approaches.
Computer vision and image recognition adoption among retailers is projected to increase by 8,143%, while AI/machine learning implementations show positive results for 76% of retailers using them for demand planning and forecasting. In addition, RFID deployment in retail supply chains is expected to grow 291% over the next two years.
However, IHL Group research also indicates less than one-fourth of retailers have successfully rolled out AI/ML solutions in areas most impacted by inventory distortion. Its research emphasizes that retailers achieving superior performance demonstrate systematic data management capabilities and the use of integrated technology platforms rather than point solutions.
"We're witnessing a fundamental transformation in how successful retailers manage inventory," said Buzek. "The data shows a clear bifurcation emerging, retailers deploying AI and machine learning are achieving sales growth 2.3 times higher and profit growth 2.5 times higher than competitors. It's becoming an existential issue – evolve or get left behind. The next decade will see technology advancements that rival 30 years of previous innovation in retail supply chain operations."
