Dive Brief:
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The inventory glut that is haunting retailers this holiday season is a complicated mess, with both overstocks and empty shelves a problem this year, studies show. Retailers are losing $1.75 trillion due to out-of-stocks, overstocks, and returns. Last year, returns alone accounted for $642.6 billion in lost sales.
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Delays at West Coast ports as a result of last year’s labor slowdowns are bringing goods late to store shelves. The $634.1 billion in lost sales that out-of-stocks cost retailers was 39% higher this year than in 2012, according to research by DynamicAction and IHL Group. Meanwhile, overstocks are contributing to $471.9 billion in losses revenues, up 30% from 2012.
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Retailers are already losing money on some of their inventory because of seasonal promotional pressures; they’re selling 21% fewer items at full price than last year, DynamicAction found. And the weather isn’t cooperating, either, with warmer temps leaving winter boots and coats on shelves.
Dive Insight:
Managing inventory has become something of a nightmare for retailers as port snafus, omnichannel efforts like ship from store and curbside pickup, the weather, and returns all muck up some of the best planning.
Orders placed online, a growing phenomenon, are making things more difficult even in an era when online orders can contribute more customer data.
One of the problems may be that for many retailers, all that data is compartmentalized into silos, making the information less useful than it could be in inventory management.
And while returns are contributing to the problem, liberal return policies can be a good way for retailers to maintain loyalty. Depending on the return or the level of returns, it could be an acceptable expense.
Strict return policies can backfire, making customers less likely to buy, and, perhaps most surprising, more likely to return a purchase. A University of Arizona study published in the Journal of Consumer Psychology looked into the consequences of stricter retail return policies and found that when customers have a smaller window or more hoops to jump through to return an item, they’re actually more likely, not less, to return it.
That just shows what a complex set of problems retailers have in managing inventory, and this holiday season it’s exacerbated by a slew of problems all at once.
