The Out of Stock Phenomena and Its Negative Impact on Buyers and Businesses

The Impact of Out of Stock in Convenience Sector (Retail) – Literature Review

We all have experienced visiting a retail store to buy our daily groceries. A retail grocery store is present in different parts of the world, however in different forms and sizes. According to Kotler (2003), “A retail store encompasses all functions involved in the sale of goods or services to its ultimate consumers” (Kotler 2003).

The retail store differs in size, intensity of service, status of formation and the varied items it sells. They are named differently according the varying elements mentioned above. They can be categorized as discount store, super market, convenience store, hyper market or departmental store. In literature based on supply chains and logistics, when a customer is unable to find an item of his choice the retail store is considered to be out of stock. Actually it is not difficult to say “out of stock”, but alike many other issues taken under research, this issue has its own implications which can only be clarified through research (Charlton & Ehrenberg, 1976).

“Out of stock can be classified into two types: item and brand” (Fitzsimons, 2000). Firstly a stock keeping unit (SKU) of a particular brand may be out of stock and secondly all options of a particular brand in a single product can be out of stock. Out of Stock (OOS) has been defined differently by different researchers.

Gruen and Corsten (2002) define OOS as “the percentage of SKUs that are OOS on the retail store shelf at a particular moment in time”. This means that the customer perceives that the item he wants will be available but it is not.

Alternatively, from a consumer point of view, OOS is “the number of times a customer looks for the SKU and does not find it”(Corsten & Gruen, 2003). In this case the calculation is based on the frequency of times the consumer is unable to get hold of the SKU which is then divided by the total of the times the consumer actually is able to get hold of the SKU added with the total of the times the consumer gets hold of it.

Part of proposing better clientele service can be advised as proposing broader kind of goods (Verhoef and Sloot 2006). However, proposing more kind in goods and brands has two significant consequences. First, retailers are battled with more charges in providing string of connections, due to high inventory, procurement, management, and warehouse costs. Second, it furthermore raises the likelihood that out-of-stocks (OOS) may happen, which may lead to clientele displeasure and shop disloyalty.

As retailers strive to contend with discounters on service, OOS can harshly jeopardize their comparable place in the buyers mind. According to Campo et al. (2000), out of supply position not only decreases revenue but furthermore decrease of clients as well. In 20% situations shop swapping is due to out of supply situations.

Presently, there have been a vast number of studies carried out by Emmelhainz et al. (1991), Verbeke et al. (1998), Campo et al. (2000), Gruen et al. (2002), Corsten and Gruen (2003) and Sloot et al. (2005). They were responsible for formation of factors which encourage buyer reactions, such as the category of inventory, the extent of brand devotion, type of consumer and the urgency of the requirement for the item.

So all of these investigations were rather associated to assess buyer answer as an outcome of OOS position at retail- OOS position is too exorbitant for retailers, as it can originate a decrease in revenue; the study performed in 1968 for Progressive Grocer assessed more than eleven percent decrease in sales. Emmelhainz et al (1991) study outcomes display, for example, that a stock-out can make a constructor misplace more than fifty percent of his clients to competitors, alternatively retailers countenance the decrease of up to fourteen percent of the purchasers of the missing product.

This income decrease does not only owe to lost sales all the way through the OOS experience, but can additionally persist to succeeding this time and infrequently other merchandise categories. To decrease OOS incident, it is crucial to find out components that cause such problem. There was very little work finished on the cause of out of stock in retail environment. Corsten and Gruen (2002) revised the trials of out of supply, and they endeavored to find out cause behind OOS in food shop environment. They, after analyzing forty investigations, discovered mean OOS rate worldwide was “8.3% and the biggest depicted rate was 12.3 percent and the smallest was 4.9 percent” (Corsten and Gruen 2002).

This variety is due to administration practices and the methodology that was utilized to assess out of stock. They categorized causes in to four grades in provide string of connections and three purposeful localities encompassing designing organizing and restock. According to this research ―most of the stock-outs are initiated by retailer shop organizing and forecasting practices or by ledge re-stocking practices. It is rather an elevated percentage (Sloots, Verhoef, & Franses 2005)

When a customer does not find the products or items he is looking for, it will eventually tempt the customer to look out for substitutes.

Various studies in the past have made an attempt to gauge the reactions of customers at the time when they fail to find their desired product in the shelf. According to Sloot et al (2005) these responses are of six different types; “store switch, item switch, postponement, cancel, category switch and brand switch” (Sloot et al 2005).

Peckham (1963) began the out of stock research. The retail stock outs literature turns out to be at the minimum forty years old. At this time, most of the researchers focused only on one or two of the vast issues involved in the topic. These are “measurement of stock out levels in retail stores and the behavior of consumers in response to a stock out” (Peckham 1963). Consumers may retort to the issue of stock out by replacement of the item required, thus causing hindrance in the purchase or departing from the store.

Being the initial research on the subject, Peckham’s (1963), made sure that the retailers and producers got alert to expected losses potential losses resulting from stock out. In 1968, a survey was carried out by the Progressive Grocer studying effects of OSS in hypermarkets. Its main role was to recognize the diverse consumer reaction to stock outs. This set of attitudes was termed as “SDL behavior (Substitute, Delay and Leave) of the consumer” in reaction to out of stock.

Abridging the facts and figures, most of the literature mentioned above validated by Fitzsimons (2000) and Zinn and Liu (2001).

Walter and Grabner’s (1975) research proposed a model that encompasses all likely consumer reactions to stock outs in retail stores. This form prejudiced most potential studies in future on stock outs. Charlton and Ehrenberg’s study (1976) conducted a research with an actual salesman going to doorsteps and promoting cleaning products. Stock out situations was shaped in this manner and the authors summarized that customers were ready to switch their used brand for another one in the same situation.