The Cost of Inventory Error: $1.75T
Returns, overstocks and out-of-stocks cost retailers mightily.
Research released recently from IHL Group found that merchants lost $1.75 trillion annually due to those three situations.
Retailers still questioning the importance of data analysis and of full insight into sales channels — e-commerce, brick and mortar and mobile — take note.
The study, entitled, “Retailers and the Ghost Economy: $1.75 Trillion Reasons to Be Afraid,” outlines just how much these common faced problems cost merchants:
- Preventable Returns: $642.6 Billion each year
- Out-of-stocks: $634.1 Billion each year
- Overstocks: $471.9 Billion each year
The top three troubles?
Number one, internal process failures (representing $284.9B in losses); number two, personnel issues ($259.1B), and number three, data disconnects or systems that are not integrated ($222.7B).
In total, those trouble spots amount to 11.7% of annual retail revenue on average.
So, a $25 billion retailer that streamlines processes, becomes more efficient and uses analytics to make informed purchasing decisions, can expect an additional $2.9 billion added to the bottom line.
According to Greg Buzek, president of IHL Group:
Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realize huge gains by addressing opportunities that are in hand and slipping through enterprise fingers.
Merchants must dedicate time and effort into selecting the proper inventory management systems to fit their needs.
Planning is essential to ensure all parts of the supply chain are supported and that capital isn’t wasted in procuring unwanted inventory or systems.
Omnichannel insights offer retailers tremendous growth potential, but if inventory is not tracked properly, data analysis is skewed.
For example, POS software can highlight the top 20 sellers for a business, allowing purchasers to buy more of the products that are most profitable.
Conversely, POS software can inform a merchant which products are not moving, so they can be cleared out and room made for more popular merchandise.
It can be a long process, and in retail especially, time is money.
But the investment will pay off — to the tune of some 11.7%.
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