Phantom Inventory, Haunted Retailers and Brands

The other day I received an excited call from my kids, who told me that the video game Just Dance 2016 had finally been released and that I had to buy it on my way home from work.  Ever the prudent shopper, I checked a few e-commerce sites to find the best price, then made my way to my local Walmart to pick up a copy.  Given the urgency of the request, brick and mortar pickup was the only option here.

I found all of the video games under lock and key at the back of the store, and I was disappointed to find that there were no facings of this game showing for Wii (we’re old school, I know).  Undeterred, I convinced a sales associate to do a little digging behind the front facings to find the version I was looking for.  We found Just Dance for XBox360 and WiiU, Just Dance 2015, Just Dance Disney (a definite no, according to the kids), but we couldn’t track down a copy of Just Dance 2016 for Wii.  My friendly associate told me that they initially had many copies in stock, but they sold out quickly and the store was awaiting more inventory.

Facing the prospect of driving to my local Best Buy in an equally futile search, I decided to have one more look around.

And then I hit pay dirt.

Sure enough, peeking out from behind the front facing of Just Dance 2016 for WiiU, I could see a copy of the game for Wii.  I excitedly flagged down the associate to retrieve it and, lo and behold, she found not one, but 6 additional copies hiding in the same spot.  Those same copies that she thought had sold through (and had presumably replaced with her pending order) were all hiding on shelf – all victims of a merchandising error.

Needless to say, I was a hero when I arrived home, brandishing my hard-won spoils.  But given my role as CEO of Askuity, the irony of the potential lost sale for Walmart was not lost on me. After all, Askuity’s retail analytics platform empowers consumer product companies and retailers with insights to expose and fix exactly these types of retail execution and merchandising errors.

Chasing a Ghost

Wandering the aisles of Walmart, I was ‘one last look away’ from abandoning my search for the video game. I had just experienced first-hand a classic case of “phantom inventory”.

Phantom inventory occurs when product is stocked in store, and yet is not truly available for sale.  There are multiple causes of phantom inventory:

  1. Merchandising Errors:  The product is not on the shelf where it can be seen or shopped.  It may be hidden – accidentally, as in this example, or ‘by accident-on-purpose,’ when a competing product vendor has conveniently shifted the product out of view from consumers.  Or perhaps it’s ‘in the back’ or ‘up top’ and hasn’t been properly merchandised by store staff.  This often happens with off-shelf displays that are shipped into the store but never leave the receiving area.
  2. Pricing Errors:  The product has been mislabeled and mis-ticketed on-shelf, leading customers to bypass it.
  3. Delivery Errors:  The product has never physically arrived at the store due to some logistical error, but it appears as ‘in stock’ in the retailer’s store systems.
  4. Shrinkage (Theft):  The product has disappeared entirely from the store, never to return.

Whatever the cause of phantom inventory, the result is the same: lost sales.  Unless and until the error is fixed, both the brand and the retailer are losing sales to other products (bad for the brand) or other stores (bad for the retailer).  And this problem is unlikely to fix itself, since the retailer’s systems continue to show stock on-hand and therefore do not trigger new product orders, leaving the product effectively out-of-stock indefinitely.  Proactive intervention is required to interrupt the normal course of events before too many sales are lost.

Ghostbusting through Retail Analytics

Identifying instances of phantom inventory is an overwhelming task for even the best-intentioned product vendor who has retailer-supplied point of sale data at their disposal.

Let’s look at an example of a mid-sized vendor who sells 50 different SKUs across a few national chains, in a total of 4,000 stores.  That’s 200,000 data points that have to be examined every week (potentially every day!) by a national account manager or sales analyst.  For every single store and product combination, one would need to find an instance of zero sales, assess whether this instance is a ‘real problem’ by calculating the historical rate of sales for this product at this particular store, and then flag it for follow up.  And then do it another 199,999 times.  Oh, and then do it all again the following Monday, when the next week’s POS data arrives.

Not surprisingly, this level of retail sales and inventory analysis is rarely done effectively in spreadsheet-based tools that are primarily limited to simple reporting week over week.  Rather, this type of big data problem is best solved by powerful retail analytics solutions that are designed to quickly crunch through millions of lines of point of sale and inventory data. Using intelligent algorithms, these solutions can highlight the patterns and anomalies that are hurting your sales and focus your team on the right corrective actions.

In the case of my video game, for how many weeks had that Walmart store effectively been ‘sold out’ of Just Dance 2016 Wii, simply because it had been mis-merchandised by a harried associate trying to get his or her job done?  How many dads like me had left the store frustrated and gone to another retailer in the neighbourhood to complete their purchase?  Or how many potential customers gave up entirely and waited out their kids’ obsession of the week, never to purchase the game?

Smart brands and retailers know that in today’s omni-channel world, you need to be able to meet fleeting customer demand immediately when it manifests itself.  They also know that a key strategy to achieve this is to harness the power of retail inventory and point of sale analytics for better visibility.  To learn more about how you can stay one step ahead of demand (and your competition) with the industry’s leading retail analytics solution, contact Askuity today.