In January 2016, the shortage of products on the shelves of the Italian large-scale retail outlets, caused a loss in sales accounting for 4.2% of total sales volume. These figures are raising a number of questions, both regarding the financial impact of out-of-stocks for retailers and manufacturers, and about how this affects consumers’ behavior as they do not find what they need on the shelves.
In Milan on May 4th GS1 Italy arranged a conference within the framework of ECR Italia activities in order to discuss the subject: “Empty shelves? Lost sales and dissatisfied customers. The courage of those who DARE”.
During this conference, some important large-scale retail stakeholders turned the spotlight on the importance of using new tools to tackle and reduce stock-outs, thus ensuring products to actually be on the shelves and improving the quality of services provided to customers.
According to Bruno Aceto, GS1 Italy CEO, OSA – Optimal Shelf Availability – project promoter, «as to the current business operations, restoring efficiency by reducing stock-outs is now absolutely a top priority of large retail companies».
Out-Of-Stocks and lost sales: figures
«In 2015 – Mr Aceto carried on saying – the loss in sales caused by unavailable products on the shelves was estimated as being equal to around 700 million euros. These uncompleted sales are due to consumers refraining from buying since retailers are unable to meet their needs. In 2015, 3.7% of products went out-of-stock (4% in 2014) and 4.7% of sales were lost (compared to 5% of stock-outs achieved during the previous year)».
A slight improvement that, according to Mr. Aceto, «clearly shows a greater focus on limiting stock-outs and particularly gives evidence that effective actions were implemented», enabling the retail trade not to lose sales worth almost €134 million euros.
What is the impact on consumers?
As stated above, we highlighted how the lack of products on the shelf does consumers a disservice. Marco Colombo, IRI Solutions & Innovation Director, wondered how consumers react to the unavailability of the products they are looking for and what (financial) consequences there may be for retailers and manufacturers.
According to the survey conducted by ECR Italia and IRI, the first reaction customs have when they do not see on the shelf the product they were seeking is effectively that they feel “annoyed”. Despite this, 6 out of 10 customers still buy something to replace the unavailable product and in so doing they cause lost sales for retailers to be less likely and limited to about 35% lost buyers only. Much worse is the trend for the industry as a whole, since due to brand switching within the same product category (23%), replacing products with different ones (25%) and cancelling purchase orders (additional 25%), it experiences first hand that the potential risk of sales loss is quantified in being equal to 73% of lost shoppers.
During the latest part of the conference, a leading role was played by some large retail stakeholders, which, during 2015, had the chance to test OSA project.
Among retailers, a primary example is Dimar (company affiliated to Selex Group, whose Marketing Director, Stefano Gambolò, took part to the conference) that, as explained by its Reorganization Manager, Michele Dardanelli, «adopted ECR strategy of optimal shelf availability with the view to reduce out-of-stocks in its 80 outlets by establishing a process through which any relevant event is found and analyzed on a consistent and permanent basis».
The project, that started in March 2015 and at an early stage involved 4 outlets of the network only, has allowed to review the whole re-stocking and shelf-stacking structure. The first results showed a 20% turnover increase during the first year when using the new OSA STRATEGY. Based on these data, the management decided to extend such project to the entire network of outlets.
Coca Cola was represented by Giorgio Compostella, Key Customer Logistic Manager, and had the opportunity to present the projects it launched to facilitate the shelf-stacking process and counter losses arising from out-of-stocks (quantified as being about 1 billion dollar). Coca Cola Italian branch has set up a cross party working team (ranging from procurement to finance, from supply chain to sales) in order to identify when and where stock-outs take place (in 90% of cases in the outlet) and thus take the necessary steps to align production and distribution needs.