Not having the items customers want in stock may be costing online retailers up to $22 billion a year in the consumer goods segment alone, according to a new study from the Grocery Manufacturers Association. That report showed that out-of-stock rates for e-commerce purchases of consumer products are nearly twice what occurs in physical stores.
And while the more frequent responses to the discovery that your first-choice online seller doesn't have precisely what you're seeking involve picking something similar instead, more than 31% of the time, such customers head to another retailer -- digital or brick-and-mortar -- or just cancel their purchase completely.
"This is one of the first studies on online availability after previous reports over the past decade studying on-shelf availability and its effects on consumer purchasing patterns," said Keith Olscamp, a GMA director of industry affairs and collaboration, in a press release. "The findings should encourage retailers and brands to collaborate and enhance online availability in the fast-growing area of online retail."
The report examined the "online availability of baby care, fabric care, hair care, oral care, skin care, and shave care products at retailers in China, France, Germany, Japan, United Kingdom and the United States." Researchers found that physical stores had an overall out-of-stock rate of 8.3%, while at digital retailers it was 15%.
Having out of stock items can cost a retailer the sale. Image source: Getty Images.
How do consumers react?
In many cases, retailers are only hurting themselves by being out-of-stock on items. A consumer can't skip buying diapers because the store does not offer the brand he or she was looking for. What can happen, however, is that the consumer will elect to get the item elsewhere.
A 2002 study of 71,000 consumers in 29 countries by the same researchers who did the recent GMA report showed that shoppers were more likely to leave a store than pick a replacement product -- only about 45% of consumers elected to go for a substitute. The breakdown of customer responses, according to the report, which was published in the Harvard Business Review, were:
- 31% buy the item at another store;
- 26% substitute with a similar product a different brand;
- 19% substitute with a similar product in the same brand;
- 15% delay their purchase;
- 9% elect not to purchase at all.
The new report did show that shoppers were more likely to switch brands or substitute items within brands when patronizing online retailers than they were in brick-and-mortar stores. In the U.S., digital shoppers switched sellers 15% of the time, while 60% purchased a substitute from the original digital retailer. Roughly 10% abandoned their digital purchase plans and went to a physical store instead, while 15% delayed or canceled their purchase.
How big a problem is it?
"To extrapolate to the industry level, the Global Top 100 publicly listed consumer goods manufacturers had sales of $1.7 trillion (wholesale) in 2016," according to the GMA report. "If 5% of sales is online and what is available online is 80%, then online sales are $85 billion industrywide, and the online lost sales opportunity is $17 billion."
In reality, though, these are not as much "lost sales" as they are shifted sales. Some items may never be purchased, but most of the categories on the list in this study are either necessities or near-necessities. A consumer may briefly put off restocking their supply of shampoo, for example, or test out another brand, very few will decide to simply let their hair return to a state of nature.
What can retailers do?
Since the majority of online shoppers (60% in the U.S. and 55% in the other countries studied) will buy a substitute if they have to, digital retailers need to examine their behavior in more detail. If consumers, for example, are more ready to choose a different brand or size when it comes to laundry detergent, but have less tolerance for experimenting with their shampoo, than they'll want to put more resources into keeping the hair care department fully stocked.
This data also makes it clear that companies have the opportunity to boost their sales simply by keeping the right items, or in many cases, reasonable substitutes, available. By using data mining and examining sales trends so as to predict what items they need to increase their stocks of, or opening up additional fulfillment channels like shipping from stores or alternate warehouses, a savvy retailer can get an edge on its rivals.
