What do out-of-stocks cost a retailer?
Out-of-stocks cost retailers an estimated $934 billion in lost sales globally each year, a figure IHL Group put forward in 2018 1. Stockout costs cover both direct and indirect expenses that a business incurs when it runs short of stock 2.
Where the cost shows up
- Lost revenue, since out-of-stock items result in sales that do not happen 34.
- Expedited freight fees to restock and rush delivery 5.
- Lost business when customers buy from other retailers, or when orders are cancelled because delivery ran late 5.
- Employee overtime to handle irate customers, late deliveries and unplanned restocks, including holiday working to meet extra demand 5.
- Diminished brand loyalty following a stockout 4, which can snowball into consumer disloyalty and declining sales 6.
The customer-defection cost
Original research by ToolsGroup and IHL found that when consumers use click/collect or BOPIS, the retailer has been out of stock on at least one item 28.7% of the time 7. Across categories, it takes fewer than three out-of-stock experiences before consumers give up on a retailer entirely 7. When competitors face stockouts, customers are ready to take their business elsewhere 7.
The wider inventory bill
Poor inventory management cost retailers $300 million in revenue in 2018 6. A 2019 Coresight Research survey attributed an estimated 53% of retailers' unplanned markdown costs to misjudged inventory decisions such as overbuying, buying the wrong products or misallocating inventory 6. Understocking also triggers low sales and poor customer satisfaction, while overstocking drives high holding costs and raises the odds of obsolete stock 1.