It’s Time to Address Out-of-Stocks

By Jeff Weidauer, [email protected]



Talk to anyone who has been in the retail business for a while, and they will tell you that the world has changed, and continues to do so. Technology is changing daily how shoppers think about the trip, how retailers track sales and shopper behavior, and the way CPG manufacturers approach category management. Metrics abound, and the seemingly simple business of retail now depends on complex algorithms and data analysis to grow and profit.



Despite the availability of myriad data solutions, challenges remain; not all of the problems have been solved. Perhaps the biggest — and possibly most misunderstood — is the problem of out-of-stocks at retail. A number of studies have been done over the past decade or so; OgilvyAction, GMA, and IHL Group have all looked at the problem of out-of-stocks, and found that significant opportunity remains for retailers in this area.



The food industry average, based on numerous analyses, is estimated to eight percent of the total store that is out-of-stock at any given time. That should be an alarming number — in a typical 40,000 SKU store this equates to over 3,000 products. But that’s only the tip of the iceberg. Shopper perception is closer to 25%, i.e. shoppers see a much greater problem because the items that are out-of-stock are more frequently on sale or otherwise high-demand items.



In fact, an OgilvyAction study estimates that 13% of shoppers leave the store without making an intended purchase. The GMA estimates that 25% of out-of stock items are in the store, just not on the shelf. Further, fully three-quarters of out-of-stocks happen in-store, meaning they aren’t caused by supply chain problems. These out-of-stocks all equate to roughly 4% of total sales, never mind the dissatisfied shoppers who eventually move to another store.



There is a compelling case here to do something about reducing the incidence of in-store out-of-stocks. Solving the problem — or at least the majority of it — will take some time and resources, but the return on that investment promises to be significant.



The first step is to define and understand the problem at the store level. This is where the majority of out-of-stocks are originating, and there are a number of possible causes.



As stated previously, as much as 25% of out-of-stock items are actually in the store, but not on the shelf. Typically this is caused by one of three scenarios:

• “Holes” on shelves filled with other items – this is the single most common culprit. Often store personnel try to hide holes by facing over them with other product. In some cases the shelf tag is removed; subsequently the product is never reordered, and the temporary out-of-stock becomes a permanent one. Even if the product is in the backroom, it never makes it to the shelf because the spot is gone.

• Hidden items obscured by adjacent product – this happens when the available space isn’t enough to put up a full case of product. The new product is crammed into other areas, and takes over the space next to it, burying the item that should be there.

• Inaccurate shelf tagging – this situation has become more common as inexperience personnel, unable to decipher the often cryptic item descriptions on a shelf label, misplace it on the shelf.

The primary cause of all these “in-store out-of-stocks” is poor planogram compliance, according to numerous studies. The problems often begin with errors during the initial shelf set, and only gets worse from there. While printed planograms may provide a useful guide for where the products are intended to go, ultimately the person doing the reset determines how much space and how many facings each product receives. The stocker also must place subtle variations and different sizes of the same item in correct configuration.



While there are POS-based solutions that can alert the store if a top-selling product is no longer coming through the checkout, these are “after the fact” alerts that don’t prevent the problem from occurring in the first place. The goal is to have a system that will ensure planogram compliance for the initial set, as well as a way to protect that integrity over time.



Strips mounted into the shelf molding are an effective way to accomplish both of these goals. Seemingly simple, shelf edge planogram strips provide a visual map of how the planogram lays out on the shelf. These include the product description, the number of facings, and an image of the product. That last piece is important, as it assists both the reset/stocking teams, as well as the shopper when looking for an item.



Because shelf strips are full-length and customized for each shelf, out-of-stocks won’t become permanent, and the tag won’t disappear or get moved around. This is especially helpful in direct store delivery (DSD) categories like bread where planogram integrity is especially difficult to maintain. In addition, new item cut-ins can be done quickly and easily, and the new product is virtually guaranteed to end up in the right spot.



The other benefit to using a shelf edge strip solution is the labor savings component — as high as a 50% savings compared with using the standard printed planogram. This savings is more than enough to cover the cost of the strips.



Retailers are finding it necessary to take the out-of-stock problem seriously. Implementing shelf edge planogram strips is a cost-effective and efficient way to do so. The sales growth, labor savings and enhanced shopper satisfaction are well-worth the investment.



Jeff Weidauer is VP of marketing and strategy for Vestcom International Inc., a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at [email protected], or visit Vestcom.com.

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