Ghost Inventory is Alive and Well in the Multi-Channel

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Recently a friend’s iPhone got damaged in the heavy rain.  He has limited funds and wanted to spend as little as possible for a replacement, but because of his attachment to Apple, wanted to buy only an iPhone.   After looking around on the web, he spotted an iPhone 6s, which was available in Best Buy. He got on Best Buy’s web chat, which is usually a very good place to discuss their offerings, and determined that the store closest to him has it in stock.  The Best Buy support person assured him if he went to the store in person, he should be able to pick it up. But alas, the ghost (phantom) inventory struck.

Wikipedia: Phantom inventory is a common expression for goods that an inventory accounting system considers to be on-hand at a storage location, but are not actually available.

My friend made the trip to the Best Buy store, and walked over to the iPhone sales area and asked to buy the iPhone 6. The sales person was very helpful, and looked at the store inventory, but declared they were out of stock. But they had an iPhone 7, would my friend like to buy that. That is a price difference of hundreds of dollars. My friend declined.  The sales clerk then told him it was available in a Best Buy store 10 miles away.  They had only three units left. If my friend wanted it, he should go over right away before they sell out.

I think you can already predict how this story ends. Instead of the web chat on the Best Buy portal, which goes to a corporate support team, my friend got on a borrowed phone and called the specific Best Buy store.  For those of you who have ever tried to get hold of a live person at Best Buy, all I can say is – good luck. No one picks up the phone, and you have to be extremely lucky to actually be connected to the specific department. After multiple attempts, finally, he got connected to a friendly sales guy. No dice – this store was also out of stock. My friend ended up going to the Apple store and buying an iPhone 7, spending many more hundred dollars than what he wanted to spend.

If I am a skeptic like my husband, I would say that Best Buy is practicing bait-and-switch.  But let us assume it is not.

Out of stock (OOS) is a major problem in the retail industry and is one of the most important inventory metrics that impact customer satisfaction.  In a physical store, it results in empty shelves, and the customer leaving the store for a competing store or dropping the brand and switching the loyalty to a competing brand, among others.  The OOS metrics reported 15 years ago, when I entered the retail industry with my co-founders and T3Ci (which later became Retail Solutions Inc.), has not budged in spite of technology advances.  For anyone interested in reading about out of stock, the report that came out in 2007 – A Comprehensive Guide to Retail Out-of-Stock Reduction In the Fast-Moving Consumer Goods Industry by Thomas W. Gruen, Daniel Corsten, – to which Retail Solutions contributed significantly – is still quite relevant.

A recent study shows that across major retail categories 30 percent of all shoppers regularly shop in the multi-channel (online and in stores).  Retailers strive to provide a seamless shopping experience for their customers. They claim to be able to tell you that you can buy the product online, and have it be available in the next hour at the store of your choice.  They promote the image that they are multi-channel.

However, the problem of product unavailability at Best Buy is not purely an OOS problem. It is a multi-channel availability, and marketing, problem. What is the difference? In a pure brick and mortar store, the OOS problem is one that is very specific to that store.  In the multi-channel, the online inventory accuracy for a specific store in the channel is highly suspect, especially for fast-moving goods, unless the inventory at a store is updated in real-time on the multi-channel portal, and the on-hand inventory accuracy is close to 100%, devoid of phantom inventory and other inventory accuracy problems.

Unfortunately, many retailers are struggling with legacy data systems.  Instead of being able to update inventory in real-time, the data is updated once a day, maybe even once in 72 hours.

It is a marketing problem because the multi-channel portals tell the customer something that is not accurate and reliable.

For the retailer striving to be multi-channel :

  • Don’t promise what you can’t deliver. Know the limitations of your inventory systems, and convey them to your marketing team. If you have legacy systems that don’t reflect the inventory status in individual stores in real time, there is no point in claiming you have so many units on stock in a particular store.
  • Increase inventory accuracy by implementing robust demand management and supply chain strategies by collaborating with the suppliers.
  • Take the bold step of replacing your aging inventory systems with one that can truly deliver multi-channel benefits. Yes, it will be expensive, but if your strategy is to be a viable multi-channel retailer, your business depends on it.
  • Consider experimenting with some bleeding edge technologies today – such as robots or indoor drones for assessing store and warehouse inventory – and when they mature and become affordable, use them.

Lessons for the consumer:

  • If you want to buy a product immediately, your best bet is to check availability at the brick and mortar store in person. It is not sufficient that the store support clerk checks the inventory system. She must be able to physically verify the product is on the shelf.
  • If going to a store is not an option, stick to pure e-commerce. Order the product online and accept the delivery date provided by the online portal. In a multi-channel operation, the retailer can source the product from many locations and make it available in a reasonable time.

Coming back to Best Buy, here is a screenshot of product availability for iPad Pro on the Best Buy portal:

best buy

Do I trust this information? NOT!

P.S. I retired from Retail Solutions Inc. (T3Ci) in November of 2016. The amount of knowledge I gained about the retail industry in the thirteen years I was leading the global product development there, is priceless. I applaud all those who are working in this industry devoted to delighting the customers under razor-thin margins and never-ending cost reductions.

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