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What’s The Real Cost of Product Stockouts On Your Shopify Store?

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Are items running out of stock on your Shopify store? Wow! That’s good news for your business. Clearly, your products are in demand and customers like to buy them from your site.

But look at this situation from another perspective. The stocked-out product continues to be in demand. Drives traffic to your store. When customers see the product out of stock, it can do more harm to your business than good.

Let’s understand why.

Product stockouts are costly for your business

What happens when customers encounter a product out of stock? A study backed by Harvard Business Review aimed to find out. A survey of 71000 consumers in 29 countries revealed this:

out of stock

Due to the above consequences of product stockouts:

  • Retailers can lose 50% of sales
  • This can lead to sales losses of 4%
  • For a billion-dollar retailer, this could mean $40 million of lost sales a year

The adverse effects of out of stock products are real. For example, in 2015, Toys R Us, the giant toy store, ran out of top-selling items during the Black Friday sale. As a result, they left thousands of customers unhappy and lost much more in sales.

And stockouts can cost retailers in other ways, too. For example, when you try to acquire inventory on a short notice, it can cost an increased amount for expedited production and delivery.

But here’s the hard truth – low sales and financial losses is one thing. Out of stocks can damage your business in many more ways.

Ways in which a product out of stock can damage your business

 

It can cost your business its reputation 

Imagine you’re shopping on a site. You like a product. But then realize it’s out of stock. You decide to come back to the site after a few days to buy it. But even after weeks, there’s no sign of it being restocked. This experience can leave you disappointed. 

Here’s what stockouts can do to your store:

  • Out of stock products can cause low customer satisfaction
  • Prolonged stockouts can lead to losing customers forever
  • Repeated stockouts can lead to a reduced traffic to your site
  • Your most loyal customers might shift to other brands

As a brand, you might have spent years and a lot of money to build your reputation. But it can take a few seconds to lose it. 

To tackle the out of stock problem, you should have an automated system on your Shopify store that does your work even when you’re not aware about stock-outs in real-time.

Stockouts have a negative impact on customer experience

Customer experience matters more than ever. 86% of consumers say that they’re willing to pay more if it means they’ll get better customer experience.

Shoppers often feel disappointed and left out when your site doesn’t have what they want. Moreover, if you fail to let them know when the items will be restocked, they might start losing interest in your brand.

Further, if an item remains out of stock for too long, it might leave a bad impression of your brand. 

Here’s what happens when product stock-outs become a common occurrence:

out of stock

Source

Every interaction that a customer has on your site – from finding an item that they like to realizing it’s out of stock to being able to buy it once it’s restocked – draws emotions. 

Whatever emotion they experience, joy or sadness, tends to get associated with your brand.

And those emotions lead them to asking questions – whether to buy from your site or not, to return to your site or not. And this has long-term effects on your sales and growth.

In the case they encounter an out of stock product:

  • If the customer feels unhappy, it’s unlikely they’ll recommend your site to anyone else
  • Moreover, they might not come back to your site if they find the item available on another site
  • If the customer was able to subscribe to a restock alert and later bought the restocked product, they might feel satisfied with the whole experience

With so much at stake, you don’t want to ignore out of stock products on your Shopify store. Do you?

You can lose customers to competitors

As discussed above, when customers don’t find an item that they want on your site, it can take them just a few seconds to find it on another site. If they’re in a hurry to buy the item, they will definitely buy it from your competitor sites.

At times, customers who go to your competitor’s site, might never come back to your site. This is a loss. This is also an added cost. How?

Here’s how – now that you’ve lost a customer, you will try to bring back that customer. Maybe you’ll offer them a discount, run marketing campaigns to bring them back, and run ads. All of this will cost money. 

Moreover, in the meantime, you will also try to bring new customers to replace the old ones. If you’re a marketer, you’d know that acquiring a new customer is 5X more costly than retaining the existing ones. 

Moreover, one lost customer is not just the loss of a single sale. It’s a loss of countless successive sales. 

But the real nightmare is if that unhappy customer leaves a bad review of your store on an online forum. Did you know, 94% of shoppers avoid a brand if they read a bad review!

out of stock

Impacts your conversion rate

A few decades ago, things were different. If customers didn’t find a product at their usual brick and mortar store, they’d wait for a couple of days and buy it from the same store.

Today, the scenario is completely different. If your customers don’t find what they want on your site, they can find it on another site. Within a few seconds.

This means you don’t just lose sales opportunities, you even lose any kind of conversion. 

For example, if a new customer faced a stocked-out item and went to another site to purchase it, you would even lose the chance to collect data such as their name, email address, contact details, etc., which could have helped you convert them in future.

However, there is a possibility to turn around this situation. You could use a good back in stock notification app on your Shopify store. 

A back in stock such as Appikon Back in Stock will allow shoppers to subscribe to restock notifications. 

Extra shipping costs

When items go out of stock, online stores are eager to restock them. This is especially during peak shopping periods such as around festivals or the holiday season.

As a result, stores try to expedite inventory deliveries. This might cost extra money for speedy delivery, and storage costs, among other expenses. 

Moreover, once an item gets stocked out and stores know it’s in demand, they might stock up on extra inventory to avoid a future stockout situation. This leads to added costs and the chances of the stock not getting sold.

It can hamper retailer-supplier relationship

Oftentimes when products go out of stock on your site, you might pressurise your suppliers or distributors to fulfil your restock order sooner than the normal time. This can put the suppliers under pressure. At times, they might not be able to deliver. This can cause stress in your relationship with your suppliers. Moreover, your suppliers might not prefer working with you if such restock pressure becomes a common occurrence. 

Consequences of product substitution 

Many times when eCommerce stores are unable to restock an item, they add an alternative to that product – a substitute. While some customers might be okay and settle with a substituted product, some may not be. 

In such a scenario, customers might lose hope of buying the original product that they had liked and decide not to buy any product. As a result, they might hop over to your competitor sites and find the product they wanted.

This is a double loss for your Shopify store. Not only did you lose the customer to your competitor, but you also lost the money you spent on stocking your inventory with the substitute product.

Now, some simple ways to calculate the cost of out of stock

Unless you look at the numbers, you won’t fully understand the impact of product stockouts on your business. So here’s a simple formulas to calculate the cost of out of stock mathematically:

C-OOS = [OOSD * ID * PPU] + CC

C-OOS = Total Cost of OOS

OOSD = Out-of-stock Days

ID = Inventory Deficit (Shortfall) calculated basis avg daily sale

PPU = Price per Unit or Profit per unit 

CC = Cost of consequences resulted by OOS event

Final thoughts

Stocksout can seem like a good sign for your business, but they’re damaging too. From added expenses to unhappy customers to bad customer reviews, it has both short-term and long-term ramifications. To tackle stockout situations, use the Appikon Back in Stock app

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