It sounds simple — keep your products in stock and keep your customers happy.
In reality, however, it’s often more complicated.
Ongoing supply chain issues combined with just-in-time inventory approaches and a lack of visibility into supply and demand trends create the perfect conditions to stir up out-of-stock storms.
Best case? Customers are irritated but choose to wait or buy a substitute product you sell. Worst case? They abandon your business and go somewhere else.
This post will cover common causes of stockouts, their potential impact on profit and customer loyalty, and what brands can do to limit the risk of stockout scenarios.
Common Stockout Causes
As noted by CNBC, online out-of-stock messages rose 172% in Q4 2021 compared to 2020 — and were up 360% over the past two years.
Here’s what’s causing these stockouts:
Logistical Challenges
According to the United Nations Conference on Trade and Development (UNCTAD), global container freight rates will continue to rise and could lead to an 11% increase in import price levels by 2023.
In addition, U.S. companies now face a growing challenge in moving goods by ground. As noted by CNN, the trucking industry is already 80,000 truckers short. Unless changes are made, this number will double by 2030.
Just-In-Time Inventory Issues
While Just-In-Time inventory has gained popularity over the last 50 years as a way to reduce overstocking and improve brand and retail agility, The New York Times notes that “in a time of extraordinary upheaval in the global economy, Just In Time is running late.”
It makes sense. With global suppliers struggling to provide accurate delivery and restock times, companies that (supposedly) have enough inventory may find themselves suddenly out of stock.
Lack of Accurate Warehouse Data
Warehouse data is often out of date. This was problematic — but not devastating — before the global supply chain crisis of the last two years.
Now, brands that lack access to real-time warehouse information may find themselves selling products they don’t have — and then having to explain to customers why they won’t get what they ordered.
Potential Impacts of Having Out-of-Stock Products
Research from the Harvard Business School and the Bank of Canada found evidence of stockouts worldwide. In the U.S., temporary stockouts rose in early 2020 and then returned to pre-pandemic levels in mid-2021. Permanent stockouts, which saw products entirely discontinued, saw record highs in April 2020 — followed by a rapid decline and then another peak in May 2021.
Meanwhile, in Canada and Japan, temporary stockouts rose more slowly but have remained elevated.
And in the U.K., the combination of post-COVID-19 challenges and the ongoing impact of Brexit led to the lowest retail stock levels since 1983, according to The Guardian.
For businesses, the impacts of these ongoing stockouts include:
Loss of Amazon Rank
Businesses selling on large ecommerce sites like Amazon can find their seller rank temporarily impacted if they run out of stock. While restocking helps companies bounce back, the longer it takes to restock, the greater the impact on rank.
Customer Churn
As highlighted by Retail Dive, 39% of customers have walked out of brick-and-mortar stores when what they wanted wasn’t in stock. In other words, companies can lose more than one-third of potential sales if they don’t have enough product.
Plus, the majority of customers compare prices and availability online while they’re in-store, meaning they almost always have another alternative — and that other alternative could steal their loyalty for good.
Damaged Online Reputation
Negative reviews are more useful for prospective customers than positive reviews, as noted by PowerReviews. The reason? They’re often thought to be more informative because they highlight specific deficiencies.
As a result, negative reviews about lack of stock can both increase prospective customer interaction with review sites while also damaging your overall brand reputation.
Solving for Stockout Issues
So how can you combat stockout issues? It’s a combination of creating trust with customers, improving your demand forecasting, and collaborating with retailers effectively.
1. Create Trust
According to Salsify’s “Consumer Research 2022” report, 50% of U.S. consumers and approximately 57% of British consumers are willing to pay more for products with better reviews. Meanwhile, 44% of shoppers in France have paid more for products from a trusted brand name.
Regarding stock levels, creating trust means being honest about current availability and when new stock is expected.
For example, it’s likely not enough to post a message on your ecommerce site when certain items are out of stock. Instead, brands need to ensure they deliver omnichannel messaging — out-of-stock notices can be shared on social media and via email to current customers, along with an estimation of stock replenishment times.
2. Improve Demand Forecasting
Data analytics tools are critical to helping your company understand how purchasing trends impact stock levels. By collecting data about current and historic purchasing habits and correlating this information, you can get a sense of where the market is going and ensure stock levels align.
3. Partner With Retailers
It’s also critical for your brand to work directly with retailers to minimize potential stockouts.
For example, if specific retail stores are sold out of high-demand products, they can redirect customers to your direct-to-consumer (DTC) website for order fulfillment. Combined with promotions such as discount codes or free shipping, this is a great way to acknowledge the role of stockouts without losing customer loyalty.
Get Serious About Combating Stockouts
Stockouts can’t be stopped entirely, but out-of-stock products can pose serious problems for brands. If customers can’t find what they want when they want it, the lack of available options could sink your reputation and your business.
But it’s not all bad news. By building trust, deploying demand forecast tools, and working hand-in-hand with retailers, your brand can solve the bulk of stockout issues before they get out of control.
Ready to get serious about combating stockouts? Learn more about Salsify Orders & Inventory.
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