It pays to have accurate inventory levels. Despite industry advances in inventory management and shrinkage control, new research from RGIS LLC and the ECR Community Shrink & OSA Group found 60 percent of retailers studied had inaccurate inventory records, but when those were corrected, sales jumped.
The study, conducted by academics from the Emlyon Business School, TU Darmstadt and Cardiff Business School, found that when inventory inaccuracies were addressed, retailers in the research study saw sales increase an average of 6 percent.
The research centered on an experiment at seven European retailers in the general merchandise and fashion and apparel segments. The study involved analyzing 1 million stockkeeping units “sold in about 100 stores [that] were counted at specific points in time.”
RGIS said in a statement that “a comparison of stores that were subjected to stock counts to stores that were not, allowed the researchers to understand how an improvement in inventory record accuracy improves sales.”
The researchers found that after correcting the inventory record inaccuracies, “the participating retailers experienced a sales increase between 4 percent and 8 percent — for the entire portfolio of [stockkeeping units] on stock,” RGIS stated.
The research also showed retailers that were categorized “as ‘very accurate’ and had high profit margins” experienced a financial gain “from truing up their inventory records as well,” the report noted.
The results demonstrated that the most significant opportunity for improvement came from high-volume expensive items, and the variations in inventory record inaccuracy shown by-product category were particularly informative to which categories attract the most attention.
John Fonteijn, head of global asset protection and business continuity management at Ahold Delhaize and also chair of the ECR Community Shrink & OSA Group, said he’s been working in the field of asset protection for many decades, “and we have always known in the business that in every store, inventory records are not always accurate and that if they would be more accurate, that sales would grow.”
“We never had the actual data that could prove what we felt in our gut was obvious,” Fonteijn said. “This research, for the first time, delivers that certainty and the real evidence to support our intuition, and the compelling data needed to support a greater investment in prioritizing improving inventory record accuracy.”
The academics also looked at how inventory accuracy deteriorates over time, following inventory stock counts. “The results showed that stock records start to deteriorate directly after a stock count, and that especially sku’s with high accuracy levels deteriorate a lot during the initial weeks after the stock count,” the researchers.
Aris A. Syntetos, professor at the Cardiff Business School, said the start of the year, “when traffic is not at its peak and inventory levels are low, can be seen as a good time for stock counts.”
“Our research has shown that you may want to think of stock counts in a different way: as a sales increase strategy rather than an unnecessary cost,” Syntetos said. “Our report, prepared in close collaboration with ECR, shows stock counts to lead to important sales lift opportunities.”