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How sustainability in retail is changing the future of commerce

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Customers don’t like to be disappointed, and they aren’t shy about telling others when their expectations aren’t met. To avoid one of the more common – and potentially disappointing – customer experiences, retailers should do everything they can to prevent the dreaded “out-of-stock” situation.

This pressure is exacerbated by a perception amongst shoppers that the likes of Amazon are rarely out of stock. Whilst not factually correct (estimates are that Amazon is out of stock at similar rates to other retailers), physical and e-commerce retailers do need to combat that perception by keeping in-stock rates as high as possible to remain competitive.

On the other hand, what happens to product that isn’t sold? How are retailers disposing stock that remains unsold, despite discounting?

Customers don’t like seeing “out of stock,” but also dislike unethical and unsustainable retail practices. Good retailers avoid both.

The environmental and ethical impact of overstocking is often considered as an afterthought, if at all. And with consumers being more conscious than ever, that’s a whole added risk.

Aside from the damaging environmental impact of creating more waste, this also puts pressure on manufacturers to produce more at a faster rate and with fewer resources, resulting in subpar standards when it comes to ethical and sustainable production.

Sustainability issues in the supply chain are an increasingly important consideration in shopper purchasing decisions. There is now an active war on waste, one resulting in a series of efforts to re-distribute leftover products to where they are needed.

New ways to recycle and reuse products are being developed throughout the industry — including among retailers — to reduce what goes into landfills.

For example, Australian surfing brand Ripcurl allows shoppers to return old wetsuits in some of their stores so they can be recycled. At the same time H&M and some of their peers are calling for customers to bring in their unwanted old clothing in exchange for vouchers, with a plan of recycling the discarded textiles.

Ending overstocking is crucial to sustainability in retail

Overstocking is not only an environmental problem, but a financial one as well. According to a study conducted by IHL Group, overstocks contributed $471.9 billion in lost revenues globally last year, up 30% from three years prior.

This creates a challenge for retailers: Customers don’t like to be disappointed, so all care is taken to make sure stores are well-stocked. However, retailers must try to find a balance without over-stocking if there’s ever a hope of achieving sustainability in retail.

Despite the attention shoppers pay to the issue of sustainability, overstocks persist, and never-ending markdown cycles continue industry-wide. There are also introductory offers, mid-season sales, end-of-season sales, and dotted in between those are “frenzy days,” like Black Friday.

Combine these markdowns with the processes used by some retailers to dispose of the unsaleable merchandise, like Burberry’s much talked about destruction of goods, and H&M’s “pile of unsold stock” that was directly connected to poor inventory management, and the impact is clearly in need of a solution.

How to solve overstocking while being both sustainable and CX-focused

The primary culprits of the overstock issue have been around retailing almost since the beginning. These include:

1.) Customers expect retailers won’t run out of stock. In today’s competitive environment, disappointed customers don’t have to look far to take their wallet elsewhere, and they’re doing so more than ever.

2.) Product data siloes. When stock isn’t consolidated in one inventory system, it can’t be re-distributed to go where it’s needed. This inevitably leads to situations where the retailer can’t fulfill a customer’s expectations. Meanwhile, when the store in the next suburb has too much of the same product, it’s marked down.

3.) Not all stock is visible online. If online customers can only access all “online inventory” they will more often experience out of stock notices.

4.) Orders can’t be fulfilled from certain areas. If a customer orders an item but it is only available in one particular store, that store needs to be able to fulfill that order from another location or the sale is lost.

To solve the overstock issue, as well as the issues of decreased sustainability in production and increased waste, a single version of inventory that is always available and automatically updated is needed.

Sustainable retail depends on managing inventory

One source of inventory allows stock to be managed more carefully, saving sales and meeting customers’ expectations, while eliminating waste and limiting markdowns (think endless aisle), and today there is technology that can help maximize the potential of inventory.

Adding more fulfillment options and locations means orders can be made and delivered via any channel, anywhere. Finally, collecting data on all orders with fulfillment locations, demand, and stock movement gives retailers invaluable insight to avoid overproduction.

Using new order management technology for example, the Glue Store, a youth-oriented Australian fashion retailer, has tripled the inventory they can access, and has much more flexibility to fulfill orders. The new system automatically balances inventory, so products go to the stores where customers are demanding them, avoiding stores carrying too much stock.

Most overstock issues can be addressed quickly and easily with a real-time, global view of inventory availability coupled with the ability to move stock around depending on demand. This means that every sale can be fulfilled while significantly reducing the need to carry excessive stock that would either be marked down or sent to a landfill.

Learn more about how technology can help achieve sustainability in retail. Read the report today

Veronika Birnkammer
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Veronika Birnkammer

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