News & Events

6 Steps Retailers Can Take Today to Reduce Out-of-Stocks

April 30, 2014

Retailers know that stockouts impact financial performance and customer satisfaction, yet relatively few have measured and implemented solutions to improve their merchandise availability. But that’s changing – quickly and dramatically.

Everyone knows the old adage about success in retail being all about “location, location, location.” Well, it’s still true – except that “location” now also refers to understanding the location of merchandise and stock position at the precise moment when a shopper wants to make a purchase – in store, online or both.

After all, nothing creates more of a drag on buying behavior in a specific retail outlet than when the desired item is out of stock (or worse, it can’t be located by the store at that time). Research suggests that shoppers will change stores after 2.4 instances of finding their desired merchandise out of stock. So understanding exactly the store’s inventory position and where the merchandise is located at the time of purchase decision – on the shelf, in back-room inventory, somewhere else in the store other than its designated area, or at another store location – is paramount to ensuring that the shopper walks away having made a purchase and is happy about their experience.

Retailers are all too aware of the sources of out-of-stocks: Outdated inventory management systems with 60% accuracy levels; supply chain inefficiencies; shrink, both from internal and external sources; poor execution of in-store processes for stocking merchandise and handling returns, and many other causes. But what’s less certain is how to effectively, efficiently and sustainably reduce out-of-stocks.

Here are six steps retailers can take now in order to accelerate reduction in out-of-stocks:

Step 1: Step up and expand the use of RFID where and when it makes sense. Although a handful of innovative market leaders have aggressively used RFID, too many retailers remain laggards when it comes to the technology, Today, however, the question no longer should be “should we adopt RFID” but “how and where can we implement and expand use of RFID.” Experts like Bill Hardgrave, dean of Auburn University’s Harbert School of Business and an expert on RFID adoption in retail, said the technology’s reliability and economic benefit have been well established, and the time is now to step up its utilization to address such long-time plagues as “frozen out-of-stocks” and inaccurate inventory caused by perpetual inventory practices. Hardgrave and other retail experts add that retailers need to understand the benefits of item-level RFID in helping stores take a giant leap forward in getting a deeper understanding of their stock levels at any point in time. While 100% RFID adoption may not make sense for every retailer, organizations should understand and find the appropriate use cases for the technology.

Step 2: Transform the focus from inventory management to merchandise availability. When reliance upon manual practices such as hand-counting inventory was the primary cause of out-of-stocks, it became low-hanging fruit for RFID-based inventory management. But simply having more accurate inventory counts no longer is good enough; winning retailers are focusing upon ensuring that the right merchandise is available when and where shoppers want to buy. For instance, a number of leading retailers are using RFID to track the location of shoes on their show floor and, for the first time, are able to know what they have and where it is located, according to Jordan Speer, editor-in-chief of Apparel Magazine. She added that other retailers are using the technology to track the location of garments, essentially allowing them to not only do more accurate inventory counts but to align inventory levels with specific SKUs. Major retailers such as Kohl’s are making merchandise availability a central part of their effort to improve operational efficiency throughout their network of stores.

Step 3: Don’t overlook the many benefits of today’s innovative loss prevention solutions in reducing out-of-stocks. One of the most tried-and-true approaches to improving merchandise availability remains shrink management, and today’s solutions offer enhanced capabilities and features to help retailers ameliorate out-of-stock scenarios. The most-stolen merchandise in most stores often is the most profitable for retailers, so cutting shrink using relatively inexpensive but proven high-theft solutions such as Keepers and Spider Wraps, among others, goes a long way toward addressing the problem. Also, today’s Electronic Article Surveillance solutions are more accurate, more discerning and more flexible than ever, allowing retailers not only to identify shrink when it happens, but also to prevent theft such as shoplifting or organized retail theft from occurring. Today’s EAS solutions also offer the flexibility of either migrating to RFID or to support a dual RF/RFID architecture according to a retailer’s needs. It’s important to identify and collaborate with a partner that can architect and implement the most appropriate migration path in accordance with the retailers’ current and future needs.

Step 4: Use RFID to integrate key retail applications, starting with shrink management and inventory management. Since shrink continues to have major impact on merchandise availability, in most applications it makes sense to use RFID to integrate shrink management with inventory management in order to get a 360-degree view of merchandise availability. It also makes sense from a cost-efficiency standpoint because advances in RFID chip design now support both shrink management and inventory management in a single tag, thus reducing tag acquisition and deployment costs.

Step 5: Embrace advanced analytics, including Big Data. Retail is an industry that has always had huge amounts of data available for analysis; most retailers, however, struggled to mine all that data to glean a few valuable insights to identify and remediate the causes of out-of-stocks. While RFID certainly introduces even more data into retailers’ operations, the important news is that there now are powerful and sophisticated new advanced analytics software tools to help retailers sort through those huge volumes of data to address out-of-stocks, among other operational challenges. The much-discussed Big Data movement is particularly important in retail as a source for improved supply chain and in-store operational efficiency for applications such as inventory management and shrink management. In fact, consulting firm McKinsey wrote that Big Data solutions in retail have the potential to generate between $30 billion and $55 billion in productivity gains across the entire industry by 2020. Integrating loss prevention applications with inventory visibility is a big step forward here, because today’s innovative LP solutions incorporate key sources of data acquisition, such as people counters, alarm pattern and deactivation velocity. Leading retailers understand the operational and economic benefits of mining new forms and volumes of data in integrated LP-and-inventory visibility solutions.

Step 6: Experiment aggressively, and measure fanatically. One key for retailers in reducing out-of-stocks is to leave no stone unturned in exploring opportunities for operational efficiency and quantifying return on investment. Although many retailers have implemented – or at least “dabbled” in – RFID technology for point applications like inventory management, fewer have piloted the technology more widely through their store operations. That’s changing, however, as the technology becomes both more widely accepted and more cost efficient. Loss prevention is one long-standing in-store application that is benefitting from RFID integration because of the indisputable relationship between data-rich shrink management solutions and reducing out-of-stocks. Innovative retailers are becoming more aggressive in setting up test systems, either in specific stores and individual departments within stores, to test-drive RFID for applications like shrink management, analytics, promotional program measurement and omnichannel marketing. The most successful retailers not only put these pilot programs in place, but they understand how well they’re performing because they have established baseline metrics before the programs start to help them calculate such financial benefits as ROI and total cost of ownership.
Merchandise Availability Solutions from Checkpoint Systems

In order to deploy and fully leverage solutions, identify the causes of out-of-stocks and remediate them, retailers need to identify and work with a technology partner that can:

• Offer a full range of solutions that work together to improve merchandise availability, from RFID-based merchandise visibility software to attractive and secure display merchandising, to shrink management hardware, software and services.
• Act as a proven partner to support a retail installation locally, regionally and globally.
• Deliver cutting-edge solutions based on effective retail technologies such as RFID, Electronic Article Surveillance, integrated apparel tags, IP networking, advanced locationing systems, and data analytics software.
• Demonstrate proven experience innovating high-theft solutions to help deter and protect a store’s high-risk and often most-profitable merchandise.
• Bring decades of proven experience in identifying and solving retailers’ most vexing problems that contribute to unacceptable out-of-stock levels.

Checkpoint’s iMAP – Integrated Merchandise Availability Program – helps retailers to ensure they have the right merchandise in the right place at the right time. In doing so, iMAP solutions reduce out-of-stocks by improving inventory accuracy, reducing shrink, facilitating open merchandising environments and contributing to a richer, more satisfying customer experience.

The iMAP approach combines hardware, software, services and consulting, resulting in a highly efficient, synergistic set of processes and solutions. Every aspect of iMAP is designed to help retailers achieve their critical goal of improving merchandise availability. Each solution is custom-designed and purpose-built for an individual retailer’s unique set of challenges, and yields a unique set of actionable metrics to help retailers understand the impact of those solutions on their bottom line.

No company has made such a strategic, wide-ranging commitment to helping retailers reduce out-of-stocks and optimize merchandise availability as Checkpoint. That’s because Checkpoint has long understood the complex set of factors that contribute to retailers’ out-of-stock challenges, and has made critical investments to deliver integrated, intelligent and insightful solutions for retailers.