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How Shopper Pricing Science Can Help Retailers With Out-of-Stocks

A recent Progressive Grocer webinar reported “Improving out-of-stocks” as the top pain point for retailers in 2022.  This is not a new pain point, but one that retailers have struggled to overcome for as long as we have experienced modern retail. To understand the current situation, it pays to take a look at the past.

While heading up Walmart Supercenter Operations Development, I received the mandate to dramatically improve in-stock conditions across the stores.  Supercenters were relatively new at the time.  When I joined the team, there were only 65 that were more than one-year old.  Our head of store operations understood the do-or-die nature of having the right quantities on the shelf at the right time. 

“[At Walmart,] the perpetual inventory became the physical inventory.  A change in the perpetual inventory of a single SKU made real-world changes to the financial value of store inventory.  However, while out-of-stocks declined, we still had issues that were not solved.”

There were several issues that required attention.  We studied the reasons why out-of-stocks existed, and we developed a simple method of interrogating every out-of-stock, identifying the issue, and manually correcting any conditions that would solve the inventory shortage.  With diligent persistence and the appropriate allocation of effective hours, Walmart Supercenters achieved what many had considered impossible.  The perpetual inventory was so accurate that it reduced the required frequency of physical inventory count cycles.  In other words, the perpetual inventory became the physical inventory.  This was good: a change in the perpetual inventory of a single SKU made real-world changes to the financial value of inventory in the store.  However, while out-of-stocks declined, we still had had issues that were not solved.

Fast forward 25 years, and solving out-of-stocks remains the top pain point for retailers. And solving out-of-stocks today requires improving several disciplines. 

One that was not available in the market over two decades ago is now a reality.  You can now answer these questions:

  • What’s the impact of price, promotion, and markdowns on consumer demand for every item at every store?
  • When a price change occurs, how will the customer respond? 
  • Will customers buy more or less of an item, will they switch and buy another item? 
  • Will they abandon their basket and purchase the item online (along with the rest of their desired products)?  Will they leave the store and go somewhere else? 

“Out-of-Stock” Should Not Mean Out Of Options

“The complete solution to truly reducing and eliminating out-of-stocks is to go beyond accurate data (perpetual inventory). It is critical to include the impacts of price, promotions, and markdowns to the individual item forecast and replenishment process for every location across the entire enterprise.”

As consumer demand responds to the changes of these key levers, what can retailers do?  What should be done?  AI-powered demand science can deliver key information that should be shared with the rest of the supply chain.  While labor is scarce and more expensive today, accurate perpetual inventories remain an important ingredient to improving in-stock conditions.  However, the complete solution to truly reducing and eliminating out-of-stocks is to go beyond accurate data (perpetual inventory) It is critical to include the impacts of price, promotions, and markdowns to the individual item forecast and replenishment process for every location across the entire enterprise.

Most systems today take considerable time to respond to changes in customer demand especially when demand slows down.  This delay causes excess inventory, reduced inventory turns, and warehouses with bloated inventory slots.

Another important impact to understand are promotions.  As promoted items gain attention and are purchased by consumers, there are items that will not be purchased (likely items that are not promoted) at the same frequency.  As the impact of promotions are understood and adjustments are made for the demand for every other item in the store (physical or digital), inventory quantities will be adjusted at the store, fulfillment centers, and warehouses.  This will improve inventory efficiencies as well as increase on-shelf availability.  However, very few retailers are combining the impacts of promotions with the forecasts and replenishment of non-promoted or otherwise impacted items during the promotion.

I believe in the results of the research Progressive Grocer released.  Improving in-stock conditions is a top pain point for retailers.  Retailers are experiencing an increase of digital commerce.   On-shelf availability is key to delighting consumers and growing revenue profitably in an omnichannel retail reality. 

I recommend downloading the following to understand and determine a path forward that can truly reduce out of stock conditions.

Download Your Free Retailers Guide to Success in 2022:

 


About Kevin Sterneckert, Chief Strategy Officer

Kevin partners with our customers and across the DemandTec team to develop the strategies to drive growth through solutions that empower retailers and manufacturers with advanced capabilities that unlock new value and competitive opportunities.

With more than 35 years of industry experience in retail technology, including extensive hands-on pricing and merchandising experience at HEB, Walmart, and others, Kevin combines forward-looking industry visionary insights with the pragmatic grounding of a seasoned practitioner, including previously serving as a senior leader of DemandTec in its start-up days. With a range of successful prior executive leadership roles at retail technology companies including Symphony RetailAI, JDA (now Blue Yonder), Predictix, and Oracle, as well as several years as Gartner’s Research Vice President and Lead Analyst for the Consumer Value Chain, Kevin provides a unique and expert point of view to focus on high-impact solutions that will enable retailers to succeed in a fast-changing landscape, today and in the future.


About DemandTec:

A pioneering leader in retail pricing, promotion, and markdown technology for decades, DemandTec is ushering in the new era of unified autonomous merchandising. With Unify by DemandTec — the industry’s first — retailers can unite their data, systems, internal teams, and collaborate with suppliers to generate profitable revenue growth with the power of AI.

From food to fashion, DemandTec partners with more than 700 customers around the globe. To learn more, please visit us at www.demandtec.com.

 

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Shopper Intelligence to Autonomous Commerce