SCDigest
Editorial Staff
The News: A
new study by researchers from the Wharton
School of Business at the University of
Pennsylvania finds that the perception of
a store’s in-stock position can be
increased significantly by better store-level
execution and improved training of floor
personnel – resulting in a sharp increase
in sales. (See Out
of Stock? It Might Be Your Employee Payroll
-- Not Your Supply Chain -- That's to Blame.)
SC Digest Says: |
It is
important to distinguish between true
out-of-stocks at retail and "customer
perceived in-stock" -- a metric
the authors use to describe the number
of customers who answer "yes"
to that all-important "Did you
find everything?"
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The Impact: The
study has two important potential ramifications.
First, it suggests many retailers could
get substantial return on investment from
very modest cost to improve execution with
more staff and training in the stores. Second,
the authors suggest this might be a great
place for retailers to start looking on
reducing out-of-stocks before moving to
more sophisticated planning tools or RFID.
The Story: The
study, completed by well-known Wharton professor,
Marshall Fisher, and his colleague, Serguei
Netessine, is based on a detailed 17-month
study of a 500-store retail chain.
The researchers
suggest it is important to distinguish between
true out-of-stocks at retail and "customer
perceived in-stock" -- a metric the
authors use to describe the number of customers
who answer "yes" to that all-important
"Did you find everything?"
That metric
“is driven not only by actual in-stock
but by how well the customer rates employee
knowledge about the store and the products
they are looking to purchase,” according
to Wharton.
Professor
Netessine notes, "In a supply chain
analysis, consumers' perception of availability
is when there is inventory availability;
if you have it in the store, they will think
it is in the store." But this research
found that it was the knowledge about product
brand and prices by store employees that
was the biggest driver of consumer perception
of availability.
“Consumers
think that it is not available to buy if
there is no associate to explain the product,
if there is no assistance when they need
it,” Netessine continued. “When
we asked, 'Was there anything on your trip
to the store that you couldn't find?' and
then tried to get to the bottom of it, the
biggest driver was employee knowledge and
assistance. The actual presence of the product
is actually the second driver."
The authors
note a simple truth: a customer walking
into a store represents potential demand.
If there is an intention to purchase but
a purchase does not occur, it is usually
due to one of the following factors:
- The product
the customer wants to buy isn't in the
store because of a stock-out
- The customer
needs help and can't find a store associate
- The customers
find an associate but the associate is
not helpful
- The checkout
line is too long
(We would
add “the price is too high”
and “the product is in the store but
not on the shelf” to the list, the
latter of course which is part of the Wal-Mart
RFID focus.)
The authors
suggest retailers may be worrying and investing
too much to solve the first supply chain
related issue, and not enough on the three
store execution issues.
While the
authors say it is hard to separate the impact
of more staff versus better trained staff
to address these issues, some combination
of improvement in both those areas may pay
big dividends. The report finds that “increasing
associate payroll by $1 at a given store
is associated with a sales lift of anywhere
from $4 to $28, depending on the current
level of payroll relative to store sales.
The implication of this finding on retail
performance is quite dramatic."
It further
suggests that “"modest reallocation
of the payroll budget among stores"
in this particular chain has the potential
to drive a 2-3% increase in sales with no
increase in total store cost.
“It
never occurred to most of the retailers
that by moving employees around the stores,
you could increase sales," said Netessine.
As usual
with academic work, the actual study itself
is heavy on fancy statistics and other analysis,
but in the end, the bottom line is clear:
the best way to address both real and perceived
out-of-stocks, and perhaps the most attractive
investment a retailer can make, is to look
harder at staff allocation, training, and
modest increases in staffing levels.
Do these
study results surprise you? Do you think
the metric of “perceived in stock”
by consumers should be just as important
or even more important than actual in-stock
levels? If this is true, why aren’t
retailers paying more attention to these
basic execution issues? Let us know your
thoughts at the Feedback button below.
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