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?" What do you say? Send us your comments here

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.