Running out of inventory, also known as a stockout, is one of the most frustrating issues for ecommerce businesses. Not only does it lead to missed sales opportunities and poor customer experiences, but it also damages brand reputation and loyalty over time.
In this article, we’ll examine stockouts - what they are, their impact, common causes, and how Shopify’s Product Availability and Stockouts report can provide data to help ecommerce merchants optimize their inventory management to avoid costly stockouts.
What are Stockouts?
A stockout, or out-of-stock situation, refers to when customer demand for a product exceeds its availability. Essentially, it means that inventory has run out before it could be replenished. This leaves both online and brick-and-mortar retailers unable to fulfill orders due to the lack of stock on hand.
Definition of Stockout in Business
More specifically, a stockout occurs when a shopper wants to buy a particular item but it is unavailable or out of stock at that location. The desired item could be completely out of stock with no inventory left, or there may be some inventory remaining but not enough to meet current demand. Either situation results in lost sales for the retailer.
The Impact of Stockouts on Business
Stockouts can significantly impact ecommerce businesses in a variety of negative ways:
The most obvious effect of a stockout is lost revenue from orders that cannot be fulfilled. According to research, out-of-stock items result in about 4% of lost sales opportunities for retailers. This directly impacts the bottom line. Shopify's report allows you to identify top out of stock products to prioritize and maintain a high fulfillment percentage.
Poor Customer Experience
When customers find their desired product unavailable, it leads to frustration, dissatisfaction and poor customer satisfaction. If they need an item urgently, they may abandon their cart and purchase from a competitor instead. The Product Availability report reveals products with low availability so you can improve the customer experience.
Damage to Brand Reputation and Loyalty
Stockouts also erode brand reputation and loyalty over time. Customers who consistently find products out of stock lose trust in the retailer. If the issue persists, they will be more likely to take their business elsewhere. You can use the Stockouts report to find patterns of recurring stockouts by product, location or channel impacting your brand reputation.
Increased Operational Costs
Stockouts actually increase operational costs in a number of ways. Inventory distortion leads to poor in-store demand forecasting. Expedited shipping and extra staffing are often required to manage shortages. Returns and cancellations also become more common. Prioritizing products with stockouts in Shopify's report allows you to reduce associated operational costs.
Causes of Stockouts
There are a number of reasons why retailers experience stockouts, including:
Unreliable inventory data leads to incorrect re-order points. When actual stock levels are unknown, it’s impossible to prevent stockouts. Shopify's report provides real-time inventory availability across your business. Your inventory management system should provide tools to track inventory and alert you when a specific product requires replenishment.
Failure to Re-order in a Timely Manner
Even with accurate numbers, not re-ordering inventory soon enough can result in stockouts during lead times and delays. The Product Availability dashboard shows products needing to be reordered based on projections. Avoiding running low on popular products is an easy way to help customers keep buying.
Poor Management of People, Processes, and Technology
Disorganization across staff, workflows, and inventory systems creates mismanaged inventory vulnerable to shortages. Shopify’s unified inventory management prevents this through organization.
Poor Communication or Relationships with Suppliers
When supplier relationships are weak, miscommunications on minimums, lead times, and other factors can disrupt inventory availability. Share report insights with suppliers to align.
Insufficient Working Capital
Retailers without access to enough working capital can face stockouts if they are unable to finance new inventory orders. Use the data to secure financing.
Supply Chain Issues
Upstream issues like production delays, shipping problems, or supplier stockouts also propagate downstream shortages. The report provides visibility to identify supply chain weaknesses. The global supply chain is complex and adds to a retailer's overhead.
Why is the Product Availability and Stockouts Report Important for Shopify Stores?
There are several reasons why this report is vital:
Avoiding Lost Sales: When products run out of stock, potential sales are lost. A timely stockout report can help you meet customer demands more effectively.
Increasing Customer Satisfaction: No customer enjoys finding out that their desired item is out of stock. Keeping up-to-date with your stock helps meet customer expectations and leads to higher satisfaction.
Optimizing Inventory Management: A regularly updated report allows smoother restocking processes and better inventory management.
How to Implement the Product Availability and Stockouts Report in a Shopify Store
Step-by-Step Guide to Implementing the Product Availability and Stockouts Report
- From your Shopify admin, navigate to ‘Analytics.’
- Click on ‘Reports.’
- Under the ‘Inventory’ section, find and click on ‘Product availability.’ Here, you can track which products are available and which ones are running low.
- To check products that have already run out, go back to ‘Reports’ and under ‘Inventory,’ click ‘Out of stock.’
- Regularly check these reports and set reminders on when to restock based on your sales pattern.
Retailers can take proactive steps to avoid stockouts, including:
Using a Modern Inventory System
Integrated inventory management software provides real-time visibility and trackability across supply chain, warehouse, and sales channels. This allows for better forecasting and re-ordering with up-to-date analytics.
Connecting accounting, warehousing, shipping, and sales systems provides holistic inventory data in one place to optimize stock management. Shopify centralizes all these systems. A good inventory management system will store and track product availability information
Implementing Demand Forecasting
Predictive algorithms and sales data to forecast demand reduce guesswork around inventory needs and re-order points. Shopify's report includes demand forecasting capabilities.
Managing People, Processes, and Technology
Creating consistent processes and providing inventory training optimizes staff utilization and accuracy around stock management. Shopify streamlines your workflows.
Improving Communication with Suppliers
Collaborating closely with suppliers on minimums, lead times, and shared projections helps coordinate inventory planning. Share the Product Availability and Stockouts report with suppliers.
Maintaining Sufficient Working Capital
Securing access to working capital, lines of credit, inventory financing, and cash flow gives flexibility to finance new stock. Use Shopify Capital for easy financing.
Optimizing the Supply Chain with Shopify's Report
The Product Availability and Stockouts report provides valuable data to identify weaknesses in your supply chain that may be causing stockouts. By leveraging this report, you can strengthen your supply chain to avoid inventory disruptions.
Stockouts lead to revenue loss, poor customer experiences, brand damage, and increased costs. However, Shopify’s Product Availability and Stockouts report provides the data needed to optimize inventory management and avoid shortages. With real-time visibility into product stock levels and demand, ecommerce businesses can protect sales, customers, and their brand.