Product availability is an essential component of an exceptional purchasing experience. Retailers cultivate a sense of loyalty, trust, and satisfaction among their customers by guaranteeing that their products are consistently available and in stock. This ensures that customers return to the store frequently.
However, the consumer experience can be irreparably damaged by an out-of-stock situation. Shoppers anticipate that the products they desire will be readily accessible on the store’s shelves. If the products they wish to purchase are unavailable, they may depart the store feeling disheartened and without any purchases.
This is a substantial issue for retailers. In a study of global shopper behaviors and trends, 76% of consumers reported exiting stores without having purchased anything. The reason for nearly half of the respondents was that the item they were seeking was unavailable. Retailers incur substantial losses in these circumstances. They are at risk of irreversibly losing the trust and loyalty of consumers, who may opt to shop at competing retailers in order to satisfy their needs.
Although there are numerous factors that contribute to unexpected stockouts, retailers should be mindful of one significant issue that frequently goes undetected and accumulates significant losses over time: phantom inventory.
The difficulties associated with managing phantom inventory
Phantom inventory arises when there are discrepancies between the physical inventory of a retailer and the inventory system. In these instances, the system lists a product as in stock, despite the fact that it is not truly on the shelf for consumers to locate and purchase. This is a significant issue, as retailers are unaware that these stockouts are occurring.
Phantom inventory is exceedingly challenging to identify due to its potential to result from numerous minor incidents. Here are a few examples that are frequently encountered:
Errors in manual data entry: When new inventory is received, employees may record data incorrectly.
Inaccurate product placement: Employees or customers may position items on the incorrect shelf.
Retail larceny is on the rise, which may result in the theft of items.
Visibility concerns: Customers may be unable to observe an item if it is moved to the rear of a tall shelf or falls from its peg.
Excess inventory in the stockroom: Employees may store inventory in the stockroom that is too large to fit on the shelf, but they neglect to retrieve it when the shelf is depleted.
The majority of retail establishments are unable to continuously monitor each shelf and SKU for inconsistencies. The conventional method involves conducting comprehensive physical inventory counts and subsequently comparing the results to the inventory records. Nevertheless, these manual counts are conducted only once or twice a year, which is insufficiently frequent to detect illusory inventory issues in a timely manner. Disrupted replenishment processes, unnecessary stockouts, ongoing lost sales, dissatisfied customers, and reduced profitability are the result of cases that go undetected and uncorrected for extended periods.
Phantom inventory has an even more detrimental effect on large retailers that manage hundreds or thousands of stores. Phantom inventory cases occur in all locations, resulting in substantial losses for the organization.
Therefore, what actions can retailers take to address this issue?
Rapid detection and resolution through the use of artificial intelligence
Retailers can resolve the illusory inventory issue through the implementation of artificial intelligence. This approach is straightforward and strategic. Retailers can now detect instances of phantom inventory by integrating AI solutions with their current inventory and sales systems through probabilistic forecasting. AI analyzes demand forecasts, inventory data, and sales data to detect when a product should be selling but is not, then marks that SKU as a potential case of phantom inventory. The AI solution conducts this analysis on a continuous basis for each SKU-store location combination, thereby swiftly identifying instances of phantom inventory throughout a retailer’s entire business.
Some AI solutions then go a step further by generating automated alerts for specific store locations. Each suspected instance of phantom inventory is listed by SKU in the notifications, which are transmitted directly to the store manager via a smartphone application. This simplifies the process of addressing phantom inventory for store managers, who are no longer required to spend an inordinate amount of time inspecting the shelves for potential inventory issues.
Managers can promptly investigate each item on the list on the basis of these alerts. The manager simply needs to select “yes” or “no” or their app, depending on the results of their investigation. Subsequently, all systems are updated and the product is replenished as required.
AI can also monitor recurring issues with specific SKUs in order to reduce the occurrence of phantom inventory in the future. Managers can implement proactive measures to prevent the recurrence of issues with the assistance of these insights. For instance, managers may implement measures to supervise particular SKUs in the event that an item appears to be a frequent target for larceny.
Ensuring that shelves are adequately supplied and that customers are satisfied
The current AI solutions for phantom inventory detection are both simple and rapid to implement across a retailer’s store locations. Retailers can significantly reduce stockouts and eliminate phantom inventory by utilizing AI to manage all operations in the background.
Long-term success necessitates the provision of exceptional customer experiences. Retailers that guarantee the consistent and widespread availability of in-demand products will establish a strong foundation for customer loyalty and profitability in the years ahead.