Consumers still prefer to shop in-store, but low on-shelf availability (OSA) and high number of out-of-stock (OOS) events can impact their retail experience. Traditional methods of managing OSA just don’t compare to modern technology that monitors shelf space in real time.
Even in the digital age, nothing compares to the experience of going to a store, scanning the shelves and selecting the products you want. Although many consumers today are shopping online, research by PwC has found that the physical store is not disappearing anytime soon.
Consumers go in-store to find the products they want. If they can’t find what they’re looking for on the shelves, 49 percent will choose a substitute product, 39 percent will leave empty-handed and 12 percent will head to a competitor to meet their needs. In each instance, the retailer, the manufacturer and the customer all lose.
Why OSA suffers
OSA, then, is a crucial factor in optimizing the in-store retail experience for consumers.
OSA refers to the number of products that are available for purchase by customers in a saleable condition. Retail stores that have reliable OSA avoid disappointing their customers and give them a reason to keep coming back. OSA is not just the retailer’s problem – it is a critical growth lever for manufacturers as well, offering opportunities for higher sales.
And yet, it continues to be a significant issue for both CPGs and retailers. The causes of poor OSA have been widely studied and can be broadly attributed to:
- Poor execution and replenishment – OOS is strongly linked to problem with store execution and replenishment problems, where the product is in the store (in the backroom or in another area of the store), but it is not on the shelf when the consumer comes to buy the product. OSA suffers due to shelf holes, hidden or wrongly placed products, or inaccurate tagging.
- Store ordering problems – If retailers order too little or too late, products don’t show up in the store before they run out.
- Inaccurate forecasting – Retailers forecast demand for products and place orders ahead of time. But inaccurate forecasting leads to insufficient supply. This problem is worsened during promotions, when demand for a product often exceeds supply.
- Improper planning and management – One-fifth of OOS cases are a result of poor planning and lack of communication between manufacturers and retailers. Discontinued items could show up on the shelf, or the shipped inventory may not have been enough, causing inadequate shelf-space allocation and low planogram compliance.
Overall, up to 60 percent of OOS instances happen due to defective store practices rather than upstream issues at the distribution center or headquarters. And both manufacturers and retailers could lose up to 3.9 percent in sales as a result of poor OSA. This really makes ensuring stock availability the joint responsibility of both manufacturers and retailers – and in the best interests of both!
Why current measurement methods fall short
Many of the problems outlined above occur from a lack of visibility into what’s happening at shelf. Current measurement methods are simply unable to provide the real time and integrated data needed for better decision-making and corrective action around OSA.
- Manual audits: It has been the go-to method for many years, but is expensive and difficult to scale. Manual store audits are also prone to human error and do not measure sales loss.
- Perpetual Inventory systems: These allow immediate tracking of sales and take “zero sales” to mean OOS. Their lack of on-hand accuracy is an issue though, with one study showing a variance of 32 to 45 percent in accuracy.
- POS data: When using POS data, OOS rates are estimated based on historical sales patterns, which may not work well for SKUs that sell slowly. This method is about as accurate as manual audits, but this is still relatively low. Also, for brands, POS data is usually available only at an aggregated level and not at the store-level, which means that they cannot access granular insights.
With each of these traditional methods suffering from their own limitations, it’s time to move away from proxy sources and find a better way to track store reality.
Innovative technology that gives you ‘eyes’ in the store
Image recognition (IR) offers dedicated shelf data by giving you digital eyes in the store. Simply put, IR solutions capture images of retail shelves, which are then processed and analyzed to offer meaningful insights around OOS, product positioning, stock movements and planogram compliance. This method provide access to continuous, real-time data about every SKU in the store, alerting you before an OOS event occurs or when your planogram compliance is at risk.
Take the case of a large supermarket operator in Israel, which dramatically cut OOS from 31 hours to less than nine hours, and increased OSA by 14 percent using Trax. Meanwhile, manufacturers can also improve in-store execution, reduce OOS and improve sales productivity significantly by monitoring shelves using IR.
Maximizing the value of every shelf in every store starts with ensuring the best availability of your product.