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Why Out-of-Stock Inventory May Kill Electronic Businesses this Holiday Season

With the holiday season quickly approaching, electronics retailers couldn't be in a better position to make record breaking sales, exceeding the $1 trillion earned in 2014.  Electronics make ideal gifts, and electronic stores are one of the largest revenue generating distributors, accounting for 13.6% of all holiday sales. However, OEMs won't cash in unless they have the right omnichannel infrastructure in place.

Electronics constitute one of the leading purchases made for dads, and accounted for 20% of Father’s Day sales this past June. With the rise of tablets, mobile phones and wearables, retailers can expect this category to grow. While 2015 looks at sustained growth with these product lines, Steve Koenig, senior director at the Consumer Electronics Association (CEA), advises not to overlook other electronics that are also predicted to be big for business. Koenig explained, “Consumer decisions to replace their TVs at home with Ultra HD 4K units should provide a much-needed boost to the TV industry, while new smartwatches and other high-tech wearables will also expand that growing category this year.” 

In the news, Apple has already created fierce demand with the launch of its latest rendition of the iPhone 6s and 6s Plus.  To address this frenzy, Apple executives released a statement that online orders have been “exceptionally strong and exceeded our own forecasts for the preorder period.  We are working to catch up as quickly as we can, and we will have iPhone 6s Plus as well as iPhone 6s units available at Apple retail stores when they open next Friday.”  

It's not only smart phone and tablet producers that will go through this inventory and production pressure. The CEA advises that while total shopping category continues to grow, the channels that consumers shop across have changed drastically, leading to the introduction of omnichannel shopping. 

Consumer Demand

The omnichannel shopping experience has gained momentum as new technology continues to change consumer behavior. In this cross channel world where consumers demand more, they can shop in-store, via tablet, mobile, websites, catalogs and a combination of these platforms. Customers want to be able to place an order online and return in store, and ensure they have a full assortment of purchasing options across all channels.  Delivering this to consumers remains a challenge for retailers and consumer electronics companies. Unfortunately, many have underestimated or underinvested in technologies designed to better coordinate supply chains and inventory flows. Inventory visibility and management remains a major challenge.

Inventory Dilemma

The Consumer Electronics Association states that for electronics, holiday sales represent about 18.3% of annual revenue. Without these crucial sales, businesses will tank. Electronics, unlike other consumer goods, loose value faster than fruit in the hot sun as buyers will pass on older stock in anticipation of the next release. One of the top challenges retailers face in the back end is inventory management. More specifically, how to reconcile excess inventory, which leads to obsolescence and bleeding margins to stock-outs resulting in immeasurable lost sales.

This can be especially detrimental during holiday, and other promotional times, where one week can account for 25% of a retailer's annual revenue. Many retailers struggle to find the optimal balance between excess inventory and out-of-stock inventory situations. Excess inventory leads to eventual loss for the retailer. Alternatively, out-of-stock inventory results in frustration for the customer, leading to the immediate loss of revenue and potential lost sales in the future.

In 2015, GT Nexus conducted a survey of 1,000 consumers across the U.S. to understand the frustration faced with fulfillment. The resounding frustration was around out-of-stock inventory. In fact, a whopping 75% of U.S. consumers reported facing a stock-out within the past. 38% of those respondents said this happened frequently. The most alarming part of the survey was that 58% of in-store consumers who experienced out-of-stock when buying gave their purchases to a competitor or did not buy at all. This was even more pronounced with online shoppers, of which 65% became lost sales, often giving their business to a competitor with the click of a button. This is a retailer's biggest fear, as recruiting first time shoppers to a brand takes ten times the marketing dollars as maintaining existing loyal customers.

In order for electronic retailers to win, they need to create a business model that understands the implications of supply chain to their overall business. One of Apple's successes has always been to create an agile supply of inventory, delivering products to consumers' hands as soon as they're released. Despite production issues around the release of the coveted Apple Watch, Apple's decision to utilize multiple suppliers enabled the company to maintain an on-time release date despite having defective parts from a producer in China. 

As a whole, retail is undergoing a transformation spurred by new technology and consumer demands.  Now more than ever, it's important to invest in back-end technology to support efforts to provide exemplary consumer experience and win market share in this omnichannel world.

1 comment on “Why Out-of-Stock Inventory May Kill Electronic Businesses this Holiday Season

  1. lillinz2015
    October 7, 2015

    In many instances, businesses are losing money due to a significant miscalculation of stock accuracy. while some retailers claim to have an accuracy level close to 100%, in reality most retailers that aren't using RFID tags on their garments can expect an accuracy of 75% in the EU and 63% in the US. Furthermore, shrinkage is reported to be costing businesses £5.03 billion a year. In my opinion, the only way we can rectify this in the future is by investing in RFID technology, which helps to significantly improve supply chain visibility and accuracy. 

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