Retailers lose $1.75 trillion in revenue due to overstocks, out-of-stocks, returns

May 31, 2015 | By RetailME Bureau

Retailers worldwide lose a staggering $1.75 trillion annually due to the cost of overstocks, out-of-stocks and needless returns, indicates a new research released from retail analyst firm IHL Group, commissioned by OrderDynamics.

IHL’s new research, ‘Retailers and the Ghost Economy: $1.75 trillion reasons to be afraid’ is described as a landmark report that details the impact of overstocks, out-of stocks and needless returns — three of the primary components of the Ghost Economy haunting retail — on the $14.5 trillion retail economy worldwide. These inefficiencies result in “monies left on the table and the loss of sales that otherwise would be available,” as IHL’s study notes.

The worldwide losses in these three categories are:

Preventable returns: $642.6 billion each year
Out-of-stocks: $634.1 billion each year
Overstocks: $471.9 billion each year

Losses equal to 11.7% annual revenue for typical retailer

For the majority of retailers, the combined impact of overstocks, out-of-stocks and preventable returns add up to 11.7% of lost revenue. Addressing the inefficiencies and data disconnects throughout their organisation could mean the equivalent of adding $117 million in revenue for every $1 billion in retail sales or an additional $2.9 billion in revenue for a $25 billion retailer.

“Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realise huge gains by addressing opportunities that are in hand and slipping through enterprise fingers,” says Greg Buzek, president, IHL Group. “These problems are within retailers’ grasp to solve, but it requires more than data, more than business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues.”

Failures in internal processes, personnel issues and data disconnects

The IHL report underscores the gravity of these disconnects. The report takes a close look at what the research firm terms ‘inventory distortion’, the combined impact of overstocks and out-of-stocks. The top three sources of inventory distortion, according to the research, are internal process failures (representing $284.9 billion in losses), personnel issues ($259.1 billion) and data disconnects/systems that are not integrated (representing $222.7 billion).

“Retail CEOs are more challenged than ever to answer the growing omni-channel demands of consumers while providing profitable growth for owners and shareholders,” observes Kevin Sterneckert, CMO of OrderDynamics. “With internal process failures, disjointed data and siloed organisations, the answers C-level retailers need are almost impossible to attain without access to new, innovative technologies purpose-built to deliver the full potential of an organisation.”