By Jim Callahan
I have long held the belief that being out of stock is akin to running the risk of irreversibly damaging your business—beginning with that one product and how sensitive that particular disappointed customer is on that day.
There are products that customers feel they need immediately. More c-stores are trying hard to attract the sought-after female customer, but what message do we send when we’re out of stock on the feminine product she has an immediate need for? How about bread or milk? There is a very real chance that you’ve lost an important customer—at the very least you have a very disappointed customer—and that wasn’t your goal when you went into business, was it?
I worked for a good company many years ago with a motor fuel dispatcher who subscribed to the “just in time” theory, in a way that it was never intended. He envisioned the perfect delivery was bulk fuel being unloaded into the underground tank and reaching the pump and hose at the exact time a motorist was pumping the last drop of remaining fuel from the storage tank. This is a quite a trick, but not very efficient because of the delicate timing.
With no margin for error, the least little “hiccup,” rendered us out of fuel—no great surprise. In terms of fuel delivery, a busy trucking terminal, a flat tire, road work or heavy traffic almost guaranteed that the store would be out of stock on fuel and customers would often be inconvenienced.
However, the top reason we often ran out of fuel on a Monday was because we had had a better-than-anticipated volume of business over a weekend. With that scenario, the c-store not only lost fuel sales via out-of-stocks, but other sales of beer, chips, lottery tickets, etc. when customers drove off in a huff.
A regional manager for a cigarette company once informed me that because of a quirky distribution cycle an entire U.S. region received only six days stock of a particular brand of cigarettes, meaning area retailers averaged almost one full day of out-of-stocks on that particular brand. Can you say out- of-stock suicide?
BIG GUYS STUMBLE TOO
I have often said there’s only one company in the world that can beat formidable Walmart and it’s not Target, Costco or Kroger—it’s Walmart. This isn’t to pick on Walmart because we all, in varying degrees, have the same problem. But it’s the largest retailer in the world and earns the old adage: The bigger they are, the harder they fall.
Go into almost any Walmart in the late afternoon, particularly on a Saturday and look at the enormous number of out-of-stocks, just in the health and beauty aisles. This occurs in every Walmart I’ve ever been in and I have traveled extensively.
The rule of 16 says that how a customer perceives your treatment of them can influence as many as that one person and 15 other family members, friends and acquaintances that will soon hear if a retailer provided adequate service or not.
When you figure out what an aver- age customer spends with you in a year, you will see that each critical out-of- stock results in the compounded risk of losing thousands of dollars in real business and future loyalty. Most customers will give you a second chance, but why risk it?
Managers should walk a store every shift, with a strong eye on inventory.
Using a velocity report (from your supplier) to clear the dead items from the shelves allows room for new items, using a “space to sales” formula or mentality to create more room for the bestsellers and critical items. Doing this will allow retailers to grow their inside store sales more.