Product availability is a crucial part of any great shopping experience. When retailers ensure that products are consistently in stock and accessible, they foster a sense of satisfaction, trust, and loyalty that keeps customers coming back again and again.
But when an out-of-stock situation occurs, it can hurt the customer experience like nothing else. Shoppers expect the items they want to be readily available on the store shelf. If their desired products are out-of-stock, they may leave the store frustrated and empty-handed.
For retailers, this is a significant problem. In one study of global shopper behaviors and trends, 76% of shoppers reported leaving stores empty-handed. Nearly half said it was because an item they were looking for was out of stock. In these situations, retailers lose out on more than a few sales. They risk permanently losing the trust and loyalty of customers who may turn to competing retailers to get what they need.
While there are many different contributing factors that lead to unexpected stockouts, retailers should address one big issue that often goes unnoticed and adds up to major losses over time: phantom inventory.
Challenges of addressing phantom inventory
Phantom inventory occurs when there are discrepancies between a retailer's inventory system and physical inventory. In these cases, the system lists a product as in stock, but it's not actually on the shelf for customers to find and purchase. This presents a major problem since retailers don't even realize these stockouts are happening.
Phantom inventory is so difficult to spot because it can be caused by so many small occurrences. Here are just a few common examples:
- Manual data entry errors: Employees may record data incorrectly when receiving new inventory.
- Inaccurate product placement: Items may be put on the wrong shelf by employees or shoppers.
- Theft: With retail theft on the rise, items may get stolen.
- Visibility issues: An item may get pushed to the back of a tall shelf or fall from its peg where customers can't see it.
- Excess inventory in the stockroom: Employees may store inventory that won't fit on the shelf in the stockroom, but forget to pull it back out when the shelf gets empty.
Most retail stores don't have the ability to monitor every shelf and every SKU for inconsistencies on an ongoing basis. The typical approach is to conduct full physical inventory counts then compare the results against their inventory records. However, these manual counts are done only once or twice a year, which is far too infrequent to catch phantom inventory issues in a timely manner. Cases go unnoticed and uncorrected for long periods, leading to disrupted replenishment processes, unnecessary stockouts, ongoing lost sales, dissatisfied customers, and lower profitability.
For large retailers that operate hundreds or thousands of stores, the negative impact of phantom inventory is even greater. Phantom inventory cases happen across each and every location, and they amount to major losses for the business.
So, what can retailers do about it?
Using AI for rapid detection and resolution
Artificial intelligence can help retailers take a simple, strategic approach to solving the phantom inventory problem. Retailers can now integrate AI solutions with their existing inventory and sales systems to detect cases of phantom inventory using probabilistic forecasting. AI analyzes demand forecasts, inventory data, and sales data to detect when a product should be selling but is not, then flags that SKU as a potential case of phantom inventory. The AI solution does this analysis for every single SKU-store location combination on an ongoing basis, rapidly identifying cases of phantom inventory across a retailer's entire business.
Some AI solutions then take things a step further by creating automated alerts for individual store locations. The alerts list each suspected case of phantom inventory by SKU, and they get sent directly to the store manager via a smartphone app. This makes addressing phantom inventory a breeze for store managers who no longer have to spend countless scouring the shelves for potential inventory issues.
Managers can take these alerts and quickly investigate each item on the list. Based on their findings, the manager just needs to click "yes" or "no" or their app. Then all systems are updated accordingly, and the product is replenished as needed.
To minimize future instances of phantom inventory, AI can also track recurring issues with particular SKUs. With these insights, managers can put proactive measures in place to prevent reoccurring problems. If an item seems to be a repeated target for theft, for example, managers can take steps to monitor specific SKUs.
Keeping shelves stocked and customers satisfied
Today's AI solutions for phantom inventory detection are quick and easy to roll out across a retailer's store locations. With AI taking care of everything behind the scenes, retailers can eliminate phantom inventory and minimize stockouts on a wide scale.
Providing great customer experiences is essential for long-term success, and retailers that ensure in-demand products are consistently and readily available will build a solid foundation for customer loyalty and profitability for years to come.