Worldwide, consumer brands and retailers could gain $22 billion by recapturing sales lost when customers can't find what they're looking for, according to a report from the Grocery Manufacturers Association emailed to Retail Dive. At the same time, the potential losses for manufacturers and retailers are likely to double over the next few years unless retailers take corrective action, according to report authors Daniel Corsten and Thomas Gruen.
In the U.S., 15% of consumers encountering an out-of-stock online switched sites to buy the item, while 60% bought a substitute from the same online merchant. Of that 60%, half switched brands and half found a substitute from the same brand. About 10% went to a retail store to find what they wanted, and about 15% said they delayed or canceled their purchases.
Amazon and the extent of its Prime membership in the U.S. appears to have a significant effect on consumer behavior when it comes to out-of-stocks, the researchers found. In the U.S., there's less online switching among retailers and more switching within the same online store. By comparison, three European countries studied (France, U.K. and Germany) have very high brand switching, possibly because of the presence of strong private brands.
Previous studies have found that physical retailers lose to online rivals (to the tune of $34.8 billion, according to IHL Group) when their customers can't find what they're looking for, but the Grocery Manufacturers Association found some more nuanced behavior, varied by country, focusing on online sales.
The most frequent reaction upon finding a sought-after item out of stock was to seek a substitute of the same brand at the same online store (40% across all countries). But there are "striking differences" among countries when shoppers do decide to search at other online stores, according to the researchers. More than 50% of consumers do so in China and Japan, nearly double the percentage who do so in the U.S. and U.K. The three European countries have the highest level of searching for a substitute brand within the same online store, and consumers in Japan and the U.S. are least likely to see out a brick-and-mortar solution.
But shoppers believe they'll switch online stores more than they actually do, according to the study (a third said they'd switch online stores, while only one-quarter did so). Shoppers who encountered an actual out-of-stock online were much more likely to switch brands than those who faced a hypothetical one. That suggests that brand managers who depend on brand loyalty may be overestimating it, the researchers said.
Still, online out-of-stocks hurts both brands and retailers at about the same rate, the study found. Once again, though, Amazon is a little different. In the U.S., it's clear that Amazon (thanks to Amazon Prime) prevents many customers from straying despite their disappointment, the researchers say. Prime members are less willing to switch stores or channels and more willing to switch items within the store, they found.
The solution is for brands and retailers to work more closely together, according to Keith Olscamp, a GMA director of industry affairs and collaboration. “The findings should encourage retailers and brands to collaborate and enhance online availability in the fast-growing area of online retail,” he said in a statement.
And the backroom job is changing, too. Few suppliers have dedicated a manager to online availability, instead relying on customer logistics managers, who often are responsible for deliveries to retail warehouses and/or physical on-shelf availability. Even among brands with a responsible online availability manager, the focus is on the physical supply chain, with little to no influence on the digital side, according to the report. Retailers are ahead of brands in this regard, with a higher organizational awareness of the need for a position dedicated to it.