OfficeMax Hit With 30 Percent Out-Of-Stock Losses

Written by Fred J. Aun
December 18th, 2008

One of every three customers walking into an Office Max store to buy a consumer electronics product left empty-handed (and probably bitter) this year because the product was unavailable, according to new research by IHL Group.

Office Max topped IHL’s list of consumer electronics retailers in terms of lost sales due to out-of-stocks, locked cases (with no help in sight) or staffer inability to find stuff supposedly in inventory. But Office Max certainly wasn’t alone in the research company’s hall of shame, with Office Depot and Circuit City keeping it company.

“The thing that surprised us about it is the wide differences by retailer,” said IHL Group President Greg Buzek. Although Office Max had an out-of-stock rate of nearly 30 percent, Fry’s did a much better job at inventory control and had an out-of-stock rate of about 13 percent, according to IHL.

When it comes to product unavailability, consumer electronics stores were the worst of several types of retailers studied by IHL. The company said one in five people who went to a consumer electronics store walked away without being able to buy at least one gizmo they wanted.

“Office Max tends to have great prices in the circulars that get you to come to the stores, but their out-of-stock rate is astounding,” Buzek said. “Basically, they’re losing $1.96 for every customer that walks in the door because of their out-of-stock situation.”

Buzek’s company has long pointed to the big money being lost by retailers that fail to maintain inventory. A prior study found that retailers lost about $93 billion in 2007 due to product unavailability.

“I can guarantee it got worse this year mainly because retailers cut back on their inventories to lower costs,” Buzek said. “They cut back a lot on their inventory even going into the holidays. This study was done before the holidays, and the actual losses are likely to be considerably higher during the holiday period.”

Customers who came looking for unavailable sale items might have believed they’ve were duped by the old bait-and-switch, but it’s more likely they were just victims of retailer bungling. “The reality is it’s not really bait-and-switch as much as it’s ineptitude,” Buzek said.

The blame can be spread around many parts of a company. “It could be the fault of the buyers,” Buzek said. “It could be the fault of the stores. It could be the suppliers’ fault. It could be that the merchandiser forgot to tell the people in marketing they weren’t going to have that item.”

He said an out-of-stock might just be due to a bad market forecast that didn’t anticipate an item’s popularity. “That’s a better situation than the others, but an empty shelf is an empty shelf for the consumer,” Buzek said.

Buzek said the key to preventing out-of-stocks is implementing basic “retail execution” using systems that tie together the marketing, advertising and promotion to real-time inventory visibility at the store level.

“The reality is retailers want to have on the shelf one more than they can sell of every item,” Buzek said. “In some segments, they want to have five more than they can sell simply because it looks bad if they only have one left.”

Due to product unavailability, warehouse clubs like Sam’s Club lose $1.78 in sales per customer, said IHL. It found that grocery stores lose 68 cents. Among grocers, best in-stock performance is Ahold (7.4 percent of consumers experiencing out-of-stock of at least one item); worst are Food Lion and A&P (22.8 percent), IHL said.

In the home improvement category, the best performer was Ace Hardware (at 13.6 percent), which was slightly better than Lowe’s (at 14.1 percent). Menards came in as the worst performer in the category, with 20.5 percent of its customers experiencing an out-of-stock of at least one item.

The researchers also found that almost one of every nine people who shopped at Sears/Kmart stopped patronizing those stores in the last year due to poor in-stock performance.


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