Since launching Pensa Systems out of stealth at NRF2019 one year ago, we’ve conducted multiple live deployments of our system, working with major retailers and CPG brands. We’ve piloted in multiple countries on multiple product categories and SKU formats in a variety of shelf conditions – including dry shelf, open and closed-air coolers – and in a variety of store formats.

As a result, we’ve amassed a significant amount of real-world shelf inventory data. The more we dig into this data, the more a few overarching themes become clear. First, retail inventory levels may be in many cases worse than industry estimates; that said, real-time tracking data itself offers the industry its best hope to reduce stockout rates and recapture lost revenue.

Here’s a bit more detail on our preliminary analysis.

OSA may be worse than expected. While industry best practice has long aspired to 98 percent on-shelf availability (OSA), we found in our deployments that the reality often is routinely averaging 90-96 percent, and in fact, stockouts can be up to 25%-30% percent – much higher than reported by inventory systems or the industry practice of “gunning the holes” to identify stockouts. There is also significant variability by store size, SKUs, manufacturers and individual store restocking processes.

“Hidden stockouts” represent up to 30 percent of the problem. Hidden stockouts refer to situations where an otherwise obvious gap from the stockout is “faced over” with an adjacent item or the wrong product, or where the desired product is actually in stock but hidden by other products in the wrong location, or only available in secondary locations but not where shoppers expect to find it. We may be the first to start to accurately quantify this particular part of the OSA problem, which we are finding can account for up to 30 percent or more of all stockouts.

Stores often understock their top-selling products. This has been one of the most surprising findings for brands and retailers, given how motivated both are to ensure popular products are always on the shelf. The unfortunate reality we found in many of our deployments, however, is that stockout rates are typically highest for top-selling products – often hitting 8 to 12 percent or more at many stores.

Less popular products remain out-of-stock longer. Slower moving niche items on the shelf can be present to provide variety to the consumer. Ironically perhaps, hidden stockouts and inventory distortion conspire to cause these items to appear in stock and not selling, when in fact, they are out-of-stock and remain so undetected for long periods of time. Wrong conclusions can be self-perpetuating.

Small stores perform worse than average. While small stores obviously have less overall shelf space, they often stock too wide a variety in a desire to compete with larger stores and online retailers. Our initial analysis indicates this could very well be counter-productive, as it leads smaller stores to more frequently run out of top-selling products and exhibit high stockout rates overall.

Automated stockout detection can add 2-4 percent to the bottom line. The industry has long lacked consistent real-time shelf inventory data. But now that real-time tracking data is a viable possibility, our deployments have demonstrated that it can underpin quick wins and long-term improvements, allowing retailers to adjust inventory operations and brands to have more precise visibility across stores and categories.

Bottom line, retailer and brand assumptions about OSA rates are frequently off target because they don’t have the real-time, real-world data they need to better manage and optimize inventory turns. It’s well-known that stockouts result in lost revenue, lower profits and low customer satisfaction. But with access to the right data via intra-day scans and powerful analytics, retailers can improve store operations, inventory planning and planogram compliance, and brands can optimize their product allocations, category plans and supply chain delivery.

Moving into 2020, we’re excited to help more brands and retailers close the gap between inventory expectations and inventory reality.