June 10, 2022
By Adrian Beck
A relatively recent and growing trend within retailing is to increasingly offer an ‘omni-channel’ shopping environment – give the consumer maximum flexibility in how they can browse, select, pay and receive the products they wish to purchase – buy online and pickup in store being but one iteration of this model. But successfully offering this level of flexibility to a shopper is not easy for most retailers, not least because it either requires a degree of inventory accuracy and transparency rarely seen in most retail businesses, or holding high levels of buffer stock to compensate for potential errors. The former approach requires greater degrees of stock control management, while the latter inevitably means more stock holding costs and the increased risk of more frequent discounting to clear excess stock.
One of the main reasons why stock file accuracy dissipates over time is the problem of unaccounted for stock loss, driven by customer and staff theft, and administrative and process errors that occur for a multitude of reasons across the retail supply chain. This is a problem that has plagued retailing ever since the first retail shops opened – stock going missing – and is frequently referred to as ‘shrinkage’ or ‘shrink’. Research carried out on behalf of the ECR Retail Loss Group has shown that this problem compounds over time – the farther away from a stock count, the greater the degree of error and the therefore the increased likelihood that a customer will experience an Out-of-Stock moment. Not only can this lead to a lost sale, but, more critically in an omni channel environment, cause considerable customer dissatisfaction, especially if they have ordered and paid online and then made a special trip to pick the item up at a retail store.
Over the last 20-30 years, retailers have increasingly invested in a range of approaches and technologies to try and address the issue of shrinkage and evidence from one survey suggests that they have been largely successful. For instance, the National Retail Security Survey in the US, which has been recording overall rates of shrinkage for most of the last 30 years, shows a 22% reduction in rates of loss between 1991 and 2017. Through a combination of technologies, improved processes and design and the utilisation of various types of guardianship, those tasked with managing shrink have generally managed to reduce it as a proportion of retail sales.
However, the same survey is also now beginning to show a general rise in overall rate of shrinkage – since 2017, the average rate has risen by 67%. While there is not any research making a direct link between the growth in use of self-scan technologies (SCO) and overall industry averages of retail loss, the available evidence on SCO suggests that it is a growing concern and likely to increase levels of unknown loss (shrinkage) for the retailers deploying this technology. This of course is bad news for inventory accuracy and the delivery of omni channel retailing. But why might SCO be increasing levels of shrinkage and negatively impacting inventory accuracy?
Impact of Self-checkout
As can be seen in the chart, SCO can have an effect in several ways – it can lead directly to stock being lost, such as when a customer purposefully or inadvertently does not scan an item, or when they do scan all their items but walk away before making payment. But SCO can also generate inventory accuracy problems in other ways as well. For instance, if a retailer is running a Buy One Get One Free offer, SCO users can sometimes only scan one of the items (the other is free after all!). Another common problem that generates inventory inaccuracy is multi-variety scanning errors. In this scenario, a SCO user is buying various varieties of say tins of dog food (chicken, beef, tuna etc), but because they are all the same price, they only scan one variety multiple times to represent all the tins being purchased. While there is no loss in value for the retailer, it does generate inventory errors – the system now records that more of one variety has been sold and less of others than is the case. Other common problems include customers scanning the same item more than once (in theory good news for the retailer – they are paying more than once for the same item) which can lead to the inventory again being corrupted, and customers misrepresenting one product for another (the onions for bananas scam). All these events can cause slippage in the accuracy of store inventory files.
These two increasingly important trends within retailing – the growth in importance of omni channel and the reduction of consumer friction and costs using SCO technologies are putting inventory management under ever more pressure – the former demanding greater levels of accuracy and transparency, while the latter is actively degrading it by generating more forms of error. Squaring this difficult circle is not easy but evidence from previous ECR research suggests that investing in stock file accuracy is becoming a fundamental part of successful 21st Century retailing.