Will backorders affect a retailer’s sales and profits?

October 26, 2022

Nothing beats having it in stock.new research shows that brick-and-mortar retailers who need to order goods to meet customer demand are losing money in the long run.

Researchers at Northwestern and Tulane Universities examined thousands of orders from a major U.S. clothing retailer and found that customers who purchased items on backorder were more likely than customers who didn’t have to wait for the item. We found that we spent 2.1% less the following year. A customer who had to wait 10 days to receive back-ordered items reduced his spending by 6.1% the next year and by 4.6% over four years. According to this study, lost revenue associated with backorders equates to $25 million in lost profits annually.

“Backorders have a large and lasting negative impact on future purchases,” said Eric Anderson, a professor at the Kellogg School of Management at Northwestern University and one of the paper’s co-authors. wall street journal.

The study authors found that communicating ship dates to customers awaiting backorders did little to “mitigate the negative impact” of their experience. suggested the need to “prioritize customer outreach.”

Hyung Sup Bhan, an assistant professor at Tulane University and another co-author of the report, said, “It doesn’t really help to offer a conservative delivery date once the product is backordered.” Told. journal.

The new research findings are supported by others, including forester, last year predicted that brands would lose 50% of backordered sales unless sellers compensated with customer experience building measures. This is especially true for brick-and-mortar stores, where consumers are more likely to order items online if the item is not on the store’s racks or shelves.

Out-of-stock remains a major challenge, especially for brick-and-mortar retailers, with recent research indicating that when consumers can’t find what they want in-store, they’re doing business elsewhere. increase.

Increasing inventory visibility is a key goal for many retailers. SML’s “State of the Retail Insights Report‘ was published earlier this year. 24% say inventory visibility is their top concern.