The Veil Has Been Lifted

You never know who’s swimming naked until the tide goes out. – Warren Buffett

Up until a couple of years ago, growth in has been relatively slow and steady overall, with  being the fastest growing channel. This put brick & mortar retailers somewhat back in the driver’s seat versus the pure online players like Amazon.

While brick & mortar retailers have struggled with execution in their online businesses, it represented a relatively small fraction of their sales. Most of their revenue came from foot traffic in their stores and retailers made steady progress investing in and nurturing their online businesses, with plans to grow those channels gradually over many years.

The COVID-19 pandemic changed all of that. Different retailers were affected in different ways depending on what they sell and where they do business, but many retailers needed to shift to nearly 100% online fulfillment for an extended period of time virtually overnight.

According to McKinsey,  experienced 10 years’ worth of growth in 90 days at the onset of the pandemic.



Responding to such a massive, unforeseen event in such a short period of time caused unavoidable stress in terms of store operations, staffing and variability in demand and supply, but make no mistake – a great deal of the pain was self inflicted.

You see, for years (decades really), customers have been subsidizing retailers for their poor stock management. When a customer in the aisle finds a gap where the product they wanted should be, about one third of the time the retailer loses the sale. But two thirds of the time, a customer will either switch to a similar product that is or come back and buy it later, preserving the sale for the retailer.

This behaviour has been well documented in numerous studies on out-of-stocks, but it was all too easy for retailers to tell themselves “Yes, well maybe those retailers who participated in the studies angered their customers and lost sales, but not us. We’re special.”

Without the ability to definitively capture the absence of a sale that would have otherwise occurred in transaction history, many retailers could console themselves in the belief that the findings of those studies were academic and theoretical – the problem was surely not that bad.

Then the pandemic hit and many retailers were forced to conduct virtually all of their business online. And they got caught with their pants fully down.

The standard approach for fulfilling a order goes something like this:

  • A customer submits an online order for pickup at a store of his/her choosing
  • A check is performed against the store’s balance to make sure that there is sufficient stock at the selected store to fill it
  • If sufficient stock exists, the order is assigned to the store for picking
  • The store picks the order and the customer is notified when they can pick it up

Makes perfect sense, but it only works if the stock records are reasonably accurate and the store knows where the stock is.

Based on discussions with our clients who routinely measured their online order fill rate (with reason codes for failures) during the pandemic, an employee in the store who is given a pick list (that has already been checked against the store stock balance before being issued) runs into an empty shelf up to 20% of the time when they attempt to pick the order.

(Sidebar: There REALLY needs to be a formal study on this)

To be clear, this was happening before the pandemic hit, but when only represent 5-10% of your overall business, it’s easier to just sweep it under the rug and wait for it to become more pressing before doing anything about it. It becomes significantly more problematic when your stores are dealing with nearly 100% online sales volume for weeks or months at a time.

So, given that; a) an online customer isn’t in the store to make an “in the moment” decision to bail you out and; b) it’s not possible to undo years of neglect with regard to store stock management in a few days, what choices are left?

Actually, there are several. From a cost and customer service standpoint, none of them are good:

  • Take a margin hit by automatically substituting a more expensive version of what the customer ordered (if it’s in stock) in the hopes that the customer will appreciate it (which they may not)
  • Waste more of your time (and your customer’s) contacting them to find out if they really really wanted the item or if they would be willing to take a substitute.
  • Delay the order and/or incur significant additional cost having the out-of-stock item(s) rush delivered from the DC or another store who does have the out-of-stock item on hand.
  • Cancel the customer’s order altogether after exhaustively searching for the item(s) and coming up empty.

Hell, maybe the pandemic (or something like it) won’t repeat itself anytime soon and we can all go back to business as usual and deal with store stock management “at some later date”.

But what would be the downside of tackling it now?

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