The inconvenience of phantom inventory

At the end of the day, convenience retail is designed to fulfil short-term needs and unplanned purchases.

‘I’ll pick up a Kit Kat while I get some fuel.’

‘I’ll grab a quick ready meal for dinner.’

‘I fancy a can of Monster.’

On paper, this sounds straightforward, but when you consider that you have an average of 3 to 4 minutes to fulfil these needs, and that over 160 million transactions happen per day in convenience retail across the US, it suddenly becomes a substantial number of variables to deal with.

So, as a convenience retailer, you face some tough challenges:

• Are you stocking the right range?
• Does your store layout facilitate speed of purchase?
• Can you replenish in a timely manner?
• How do you respond to supply chain issues?
• Are your store associates prioritizing the right tasks?
• Are your inventory records accurate?
• How do you tackle product availability issues?

With such a small window of opportunity, the last three challenges are critical to get right. You need to have the right products on the right shelf, and at the right time. If not, there is likely a competitor chain just down the road.

Can you trust your source of truth?

While product availability is influenced by many factors, retailers must first ensure their inventory records are accurate. Your single source of truth dictates what you believe you need to replenish and sell.

Research shows that inventory records typically contain inaccuracies of up to 60%, which isn’t surprising when you consider that most inventory audits are carried out manually.

This imbalance, known as phantom inventory, is a perennial challenge across the retail industry.

When inventory records are inaccurate, it can start a domino effect of negative outcomes. Product availability starts to decline, which can begin to force increasingly disappointed customers to switch to the competition, resulting in lost sales.

The increasing threat of phantom inventory

It’s natural to want to find a solution, but it’s vital to understand that tackling the root cause, while noble, is potentially futile.

In the context of convenience, the volume of footfall and the speed of service cause some unavoidable complications:

• Products are constantly being removed from shelves and either purchased or put back in a place convenient to the customer, usually not where they found it.
• The volume of traffic can lead to shrink. We don’t have to look far to see the challenges theft poses in today’s landscape.
• Human error at the register or failing to spot gaps on shelves can cause problems with your inventory.
• A lack of staff capacity to spot or action issues with inventory.

Indeed, labour and inventory challenges go hand in hand.

With labour at a premium and an average of 2-3 workers in-store, they do not have time to focus on daily inventory counts and have higher value tasks that are more important, like managing the cash register and helping customers find items.

As a result, retailers need to find alternative solutions to tackle phantom inventory. Solutions that don’t risk decreasing profit margins and increase staff productivity.

How to tackle phantom inventory

This can feel like a unicorn at times, but there are solutions in the market that can help:

• Refine your audit process: Creating and refining a process across your estate that combines physical and cycle counts will help you increase your inventory accuracy rate. However, this comes at the cost of labour productivity and is still prone to human error.
• Camera technology: Cameras are increasingly being used across large retailers, and this innovation certainly has applications for convenience retail. The ability for live data feeds to monitor missing stock that can be correlated to your inventory record is very appealing. However, convenience retailers should be mindful that the height and close proximity of shelves increase blind spots, equally, the investment to buy and maintain in-store cameras is incredibly high.
• RFID Technology: By placing RFID tags on products, you can identify which products have left the store without being checked out at the register. This is useful for reducing manual scans but must be used with other processes and technologies and RFID tags can’t be applied across your entire range.
• POS Data: POS data tracks the inventory you received and sold, so it is a valuable tool in helping to identify phantom inventory, especially if you can analyse your inventory and sales data side-by-side. However, this requires accurate data and additional technology to reduce manual reviews.

Could data hold the key?

We shouldn’t, however, discount the value of data. For convenience retailers, data analytics holds a powerful key to addressing phantom inventory, and typically comes at a more cost effective price.

At Retail Insight, we leverage a unique blend of human expertise and mathematical techniques – something we like to call cognitive technology – to analyse a retailer’s foundational data. In doing so, we quickly identify phantom inventory instances and can automatically correct your inventory records.

This approach has a number of benefits. It’s quick to scale, there are minimal upfront costs, and it provides your staff with targeted alerts, reducing workloads and increasing productivity.

Our solution also goes beyond identifying inventory inaccuracies; it can highlight related issues such as merchandising and compliance challenges. All of this can be delivered with over 90% accuracy in just 2 weeks, giving stores unprecedented inventory management control and governance.

The right solution for your business

Ultimately, retailers can choose how they want to address phantom inventory, and there are many options on the market. But with an increasing cost of doing business and your window of opportunity to satisfy the customer being small, convenience retailers need to ensure the solution checks the following boxes:

• Your labour is freed up to serve and sell;
• The solution can scale across your entire estate;
• Speed to value and speed to deliver are in tune with your business needs;
• Accuracy of detecting an instance of phantom inventory is high; and
• Your profit margins aren’t further reduced.